Central bank independence: cases, measurement and future developments (original) (raw)
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The political economy of central-bank independence
1996
In recent years, academics and policymakers have shown increasing interest in the independence of central banks with respect to the formulation of monetary policy. In the European Union, this interest was realized in the Treaty on European Union (Maastricht Treaty), according to which the European Central Bank will have complete autonomy in conducting the common monetary policy of the European Union. Hungary, the Czech Republic, and several other countries in Central Europe have decided on autonomy for their central banks. In most of the Anglo-Saxon countries, the issue continues to be discussed. Public debate in the United Kingdom seems to lean toward more independence for the Bank of England; the Congress in the United States continues to question the autonomy of the Federal Reserve. This paper analyzes from various perspectives the advantages and disadvantages of central-bank independence and discusses the theoretical and empirical arguments in favor of autonomy. It reviews and criticizes generally accepted indices of central-bank independence, investigates the determinants of independence, and, ultimately, tries to decide whether or not an independent central bank is, in practice, desirable. We wish to acknowledge a number of colleagues for their many helpful comments and suggestions on previous drafts of this paper. We are especially grateful to Onno
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.
The European Central Bank's Independence and Its Relations with Economic Policy Makers
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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.
Determinants of Central Bank Independence and Governance: Problems and Policy Implications
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Central bank independence and governance (CBIG) is a term subject to conflicting definitions and so its related studies are difficult to compare. This paper therefore focuses on developing of a more useable definition, and an index model identifying the determinants of independence and governance and their possible policy implications. It also examines various independence measurement tools such as ranking and
Cambridge Journal of Economics, 2018
The intellectual justification for modern central banking, time-inconsistency, celebrates its 40 th anniversary in 2017 alongside the Cambridge Journal of Economics. However, the key progeny of the time-inconsistency literature, central bank independence, has fundamental flaws that have been thus far neglected in mainstream research. In the first instance, the argument for independence relies on a utilitarian rather than institutional analysis, one that neglects the genesis of central banks and their relation to other institutions within a country. Secondly, central bank independence neglects the complex interdependencies of the global monetary and financial system. Applying an institutional lens to the concept of central bank independence, I conclude that " independence " fails under the reality of globalization as much as it does in a domestic context. With central banks reliant on all manner of political institutions, they are never really independent operationally or in terms of policy.
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.
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.