Central Bank Independence: Monetary Policies in Selected Jurisdictions (II) - The Dynamics of Central Bank Independence in a Developing Economy (original) (raw)
Related papers
Social Science Research Network, 2013
A sufficient and appropriate degree of central bank independence is widely acknowledged to be necessary for the goal of achieving price stability. However, despite the levels of independence claimed to be enjoyed by several central banks, recent events indicate shifts in focus of monetary policy objectives by various prominent central banks. The impact of political and government influences on central banks' monetary policies has been evidenced from the recent financial crisis-and in several jurisdictions. Many central banks have adjusted monetary policies having been influenced by political pressures which have built up as a result of the recent crises. However such lack of absolute independence (from political spheres) could prove symbiotic in the sense that, despite the need for a certain degree of independence from political interference, certain events which are capable of devastating consequences, namely, a drastic disruption of the system's financial stability, need to be responded to as quickly and promptly as possible. Is it possible for a central bank with absolute independence to operate effectively-particularly given the close links between many central banks and their Treasury in several countries? It may be inferred that central banks' crucial roles in establishing a macro prudential framework provide the key to bridging the gap between macro economic policy and the regulation of individual financial institutions. This however, on its own, is insufficient-close collaboration and effective information sharing between central banks and regulatory authorities is paramount.
Central Bank Independence: Monetary Policies in Selected Jurisdictions (III)
SSRN Electronic Journal, 2000
A sufficient and appropriate degree of central bank independence is widely acknowledged to be necessary for the goal of achieving price stability. However, despite the levels of independence claimed to be enjoyed by several central banks, recent events indicate shifts in focus of monetary policy objectives by various prominent central banks. The impact of political and government influences on central banks' monetary policies has been evidenced from the recent financial crisis-and in several jurisdictions. Many central banks have adjusted monetary policies having been influenced by political pressures which have built up as a result of the recent crises. However such lack of absolute independence (from political spheres) could prove symbiotic in the sense that, despite the need for a certain degree of independence from political interference, certain events which are capable of devastating consequences, namely, a drastic disruption of the system's financial stability, need to be responded to as quickly and promptly as possible. Is it possible for a central bank with absolute independence to operate effectively-particularly given the close links between many central banks and their Treasury in several countries? It may be inferred that central banks' crucial roles in establishing a macro prudential framework provide the key to bridging the gap between macro economic policy and the regulation of individual financial institutions. This however, on its own, is insufficient-close collaboration and effective information sharing between central banks and regulatory authorities is paramount.
The Level of Central Bank Independence in Developed and Developing Countries
2017
This LLM dissertation offers a comparative examination of varying levels of Central Bank Independence in pursuit of monetary policy in developed and developing countries, looking particularly at the situation in developing countries in the Caribbean (Belize, Barbados and Jamaica) as compared to developed countries such as the United Kingdom (UK). The author explains the range of factors that can be taken into consideration to measure the level of CBI. Chapter 1 focus on the functions of a CB with particular emphasis on monetary policy and price stability as the primary objective of a CB as well as financial stability and its regulatory role in the financial system. Chapter 2 gives an overview of CBI, its importance and discusses the different types of CBI and its relation with accountability. Chapter 3 measures the level of CBI in the selected Caribbean jurisdictions using their CB’s Acts. An analysis is done based on the four (4) legal indicators stipulated in the Cukierman, Webb a...
Central Bank Independence and Financial Stability: Orthodox and heterodox approaches
This study argues that post-crisis discussions on central bank independence are less about a choice of a level of independence but more about a relation between the independence and the central bank mandate in financial stability. An offered hypothesis states that an increasing role of financial factors in the macroeconomic policy agenda has led to emerging of two approaches to the central bank independence. Within the orthodox approach, responsibility for the financial stability is a challenge to the accepted model: one mandate – one goal – one instrument. Interference into the financial cycle impairs transparency and distorts responsibility, while deflation bias risks get in conflict with price stability principles, adherence to which is exactly what central banks are granted independence for. In terms of the heterodox approach, a wider responsibility of central banks for financial stability requires more independence to protect the legitimacy of interference into the financial cycle and implementation of a more prudent regulatory regime. Orthodox view is contradictory in its nature, while the vulnerability of the second approach lies in quality of institutional environment. Price stability mandate is argued to remain the first priority, while the financial stability issues should be institutionalized in a clearer way to secure independence. І. IntroductIon new macroeconomic phenomena and financial turbulence after the global crisis have long been calling for concentration of researchers' attention to the role of central banks in the "new" context. at the moment, the established "new normal" phenomenon following the rethinking macroeconomic policy leaves the question open on a desirable institutional functioning of monetary authorities. Implementation of nonconventional monetary policy programs has had an impact on changes in its operational design which resulted in further actualization of question how new features of central banks' operation and environment correlate with the central bank status. at the same time, post-crisis developments in central banking and emergence of new responsibilities only emphasize that traditional challenges do not go away but instead are reinforced with the new ones. In post-crisis reality discussions on central bank independence become more pronounced, with financial stability being their integral expression. the problem of defining a role of central bank independence in the area of financial stability is attributed, to a large extent, to the fact that achievements of price stability and financial stability are not always the same thing. deficiency of the quantitative basis for the latter, lack of tool-kits for achievement of predictable results, discrepancies in the policies are only a few items on the long list of their differences. despite huge differences between the substance of the two, however, they still have a wide range of issues in common. among those common grounds are, in particular, the problems of political pressure, dynamic inconsistency, and quality of institutions. ■ The article is a translation of the original article in Ukrainian. In case of any discrepancies between the original article and its translation to English, the Ukrainian version of the article should prevail.
CENTRAL BANKS: A CASE FOR INDEPENDENCE
CENTRAL BANKS: A CASE FOR INDEPENDENCE, 2021
The distrust of governments, has led to the call for the independence of certain sensitive institutions that may otherwise be manipulated by these governments for wielding power unchecked. One of these institutions is the central regulatory banks of countries. The expectation is that an independently run central banks will lead to well-managed inflation and reduced interest rate volatility. This expectations may have been met by independent central banks, however, we cannot tell if the central banks under the control of authoritarian governments succeed or fail to deliver on the aforementioned expectations. This essay attempts to answer the following questions; does the independence of the central bank ensure the stability of the country’s macro economy? Do central banks of authoritarian governments do worse or better? To present a valid argument for these questions, a comparative analysis of select economic indicators of both pure democracies and authoritarian governments are required. This is to appraise the efforts of the central banks in both groups and ascertain the better stance to economic stability; a truly independent central regulatory bank or one directly or indirectly controlled by the government.
BAFFI CAREFIN Centre Research Paper No. 2015-3, 2015
This paper analyzes the pillar of modern central bank governance, i.e. central bank independence, highlighting three contributions. First, we provide a systematic review of the economics of central bank independence. Second, using a principal agent model we design a political economy framework, which explains how politicians can shape central bank governance in addressing macroeconomic shocks, taking into account both the wishes of the citizens and their own personal interests. This framework is then used to interpret the evolution of central bank independence from the Great Inflation throughout the Great Moderation – i.e. from the seventies to the first decade of the twenty-first century - and to the Great Recession during which recent reforms have shaken the design of the central banks by increasing their involvement in banking and financial supervision. Finally, we provide empirical evidence supporting this evolution of central bank independence using recently developed indices of dynamic central bank independence.
Reconsidering central bank independence
European Journal of Political Economy, 2002
In this paper, we survey the case for central bank independence (CBI). We conclude that CBI is neither necessary nor sufficient for monetary stability. CBI is just one potentially useful monetary policy design instrument among several, and CBI should not be treated as an exogenous variable. Instead, the question that should be addressed is why societies decide to make their central banks independent? The reasons why CBI is chosen are related to legal, political, and economic systems. A number of empirical studies find correlations between CBI and low inflation rates. Endogeneity of CBI suggests, however, that the correlation has no implications for causality. D
Measuring the Independence of Central Banks and Its Effect on Policy Outcomes
World Bank Economic Review, 1992
Making the central bank an agency with the mandate and reputation for maintaining price stability is a means by which a government can choose the strength of its commitment to price stability. This article develops four measures of central bank independence and explores their relation with inflation outcomes. An aggregate legal index is developedforfour decades in 72 countries. Three indicators of actual independence are developed: the rate of turnover of central bank governors, an index based on a questionnaire answered by specialists in 23 countries, and an aggregation of the legal index and the rate of turnover.