The Relationship between Good Governance and Independence of Central Bank (Using Focal Correlation Analysis)

In this study, the relationship between central bank independence and good governance indices was investigated using focal correlation analysis and correlation coefficient over the period 2002-2004. In this study, the International Risk Guidance Index (ICRG) was used as an index of good governance, which included ranking of 22 variables in three different subgroups of political risk, financial risk and economic risk. The MATI index (2006) has been used as an indicator of central bank independence. The index examines central bank independence in the three areas of monetary policy independence, political independence and financial independence. The findings of the study show that central bank independence has a significant relationship with good governance such that increase in monetary policy independence, political independence and financial independence lead to decrease in political, financial and economic risk.