The political economy of central-bank independence (original) (raw)
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Central bank independence: cases, measurement and future developments
European Business Journal, 2003
The independence of central banks has become a focus of debate among contemporary policymakers. The importance of this issue has been strengthened by the requirements of the Maastricht Treaty which requires the European Monetary Union states to comply with the legislation of the European Central Bank, which is widely acknowledged to be a highly independent central bank. This paper traces the roots of central bank independence in the historical development of four major central banks. The focus of this study is the evolution of the relationship between the four banks studied and their central government. The banks covered in this study are: the Bank of England, the Banque de France, the Bundesbank and the Federal Reserve. Similarities in the central banks’ development have been captured and comparisons drawn. The emerging increase in the banks’ independence appears to be a part of their evolution, whereas for other countries, one may argue that it has been an exogenously driven phenomenon.
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
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.
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 European Central Bank's Independence and Its Relations with Economic Policy Makers
2007
In this Essay, written for the Fifty Years of European Union (“EU”) Law Conference organized by Fordham Law School, I intend to sketch the independent position of the European Central Bank (“ECB”) in the context of economic policy making within the European Union. I will briefly describe the law and the practice in respect of independence and economic-policy making, both the internal (domestic policies) and the external aspects (international policies). The law is stated as of February 25, 2008.
Reconsidering the principal components of central bank independence: The more the merrier?
Public Choice, 1998
We use principal component analysis to reassess the link between different attributes of central bank independence and inflation performance. We suggest that coding problems may account for the fact that almost none of the attributes included in the Cukierman index has a systematic, plausible relationship with inflation. The multi-faceted Cukierman index also seems to be out-performed by a much narrower index focusing solely on policy independence. These findings point to the importance of using public choice analysis to isolate the real problem here: namely, finding specific central bank structures that effectively insulate central bankers from political pressures.
2012
In this paper we present the key aspects regarding central bank's independence. Most economists consider that the factor which positively influences the efficiency of monetary policy measures is the high independence of the central bank. We determined that the National Bank of Romania (NBR) has a high degree of independence. NBR has both goal and instrument independence. We also consider that the hike of NBR's independence played an important role in the significant disinflation process, as headline inflation dropped inside the targeted band of 3% 1 percentage point recently.
Does central bank independence still matter?
European Journal of Political Economy, 2008
This paper sets out background on the literature on central bank independence (CBI) and summarizes the contributions of the papers in this special issue. The clear impression is that the answer to the question "Does central bank independence still matter?" is affirmative.