The purpose of this paper is to provide theoretical arguments and explore for empirical
evidence for the rationale that low inflation persistence may be achieved either by setting up an independent
Central Bank or by an exchange-rate based policy. Our theoretical analysis states that the degree of Central
Bank independence and exchange rate policy changes affect the inflation persistence. In addition, our empirical
analysis, which concerns with selected EMU countries (France, Germany, Greece, Italy and Spain for the period
1980-1998) validates the argument. In this exercise the most likely date for the change in regime is detected by
a procedure based upon the recent work of Perron (1997), where the null hypothesis of a unit root is set against
the alternative of stationarity about a single broken trend line.