Recent research suggests that "independent" central banks in the industrial countries have delivered average rates of inflation in the postwar period that are some 2 to 4 percent a year lower than for dependent central banks whose monetary policy decisions are controlled directly by the government. 2 Specific estimates vary reflecting differences in the rankings of central bank independence that have been proposed and the specifications of the inflation equations. The general finding that the most independent central banks are associated with the lowest average rates of inflation has proven to be quite robust, however. Some of this statistical correlation probably stems from basic societal attitudes and institutional structures that, while not captured by our statistical equations, can account for both the adoption of independent central banks and lower levels of inflationary pressures. Yet there are solid theoretical reasons for believing that institutional design can influence whether conflicting pressures are resolved in favor of higher or lower inflation. New Zealand's success in substantially lowering its rate of inflation relative to the world average since 1990, when its new central bank law took effect, suggests that central bank institutions do matter. Given that mounting evidence suggests that, over the longer term, price stability actually helps to increase employment and growth, we believe that there is a strong case for adopting central banking institutions designed to promote long-run price stability.