Macroeconomic Effects of Central Bank Independence and Transparency: The case of Nigeria (original) (raw)
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The Imperative of Central Bank of Nigeria Independence
The independence of Central Banks globally is of paramount importance in the pursuit of long term economic performance and sustainability. In the case of the Central Bank of Nigeria, the authors discuss historical precedence with special reference to the amendments to the CBN Act, the functions of the institution and provide normative arguments for and against granting independence. Additionally, empirical evidence gathered from 1980 - 2011 highlights a superior economic performance when the Central Bank was granted semi - autonomy under the CBN act of (1999) and full autonomy under the CBN Act of 2007. Furthermore, the role of the Chairmanship and the composition of the board were examined. Based on the recent survey conducted, the composition of the Board of the CBN conforms to best global practices and is consistent with good corporate governance. Finally, the authors examine the budget of the CBN, and whether there is a need for legislative oversight and approval. In summary we strongly support the independence of the CBN and the need for a legislative oversight which is focused on ensuring that the macroeconomic targets set by the Bank are met. In this regard the legislative oversight should be carried out ex post, but not ex ante as envisaged under the Fiscal Responsibility Act of 2009.
2020
What appears to be a macroeconomic performance as far as inflation is concerned in Sub-Saharan economies in the last decades has coincided with an increased autonomy of monetary authorities when it comes to the conduct of monetary policy. This paper aims at assessing the potential effect of central bank independence on the effectiveness of monetary policy in term of inflation control. Starting with the theoretical foundations that put forth the notions of creditability, reputation, and electoral constraints, the paper suggests an extended empirical approach that distinguishes among various measures of de jure and de facto independence on one hand, and the mechanisms through which the effect might occur on the other. Results based on a panel data model of inflation clearly indicate that greater independence does indeed translate into increased effectiveness of the monetary policy. More specifically, de jure independence tends to matter more than de facto independence. The results als...
EFFECTS-OF-THE-PROPOSED-REMOVAL-OF-CBN-AUTONOMY-ON-THE-NIGERIAN-ECONOMY-AN-INFORMED-ANALYSIS
In Nigeria, an important issue that has engaged the attention of policy makers and the general public in recent past is the issue of appropriate autonomy for the Central Bank of Nigeria (CBN). The issue is not whether or not the Government should oversee the CBN but rather, which arm of Government should oversee the Bank -the Executive or the Legislature and to what extent. This paper examines this seemingly controversial issue from different perspectives and from an informed opinion concludes that while the CBN autonomy is essential, the issue of transparency and accountability in the conduct of the Bank's affairs remain imperative and CBN autonomy should not be misconstrued as latitude for frivolity and unwholesome dabbling, especially by the CBN leadership, into political matters at every turn of events.
Central Bank Review, 2017
The study examines the effects of financial systems and the quality of political institutions on the effectiveness of central bank independence in achieving lower inflation. Drawing from the fiscal theory of price level (FTPL) and political economy of macroeconomic policy (PEMP) literature; we estimate a panel regression model, using Two Stage Least Squares instrumental variables procedure, on a sample of 48 African countries over the period 1970e2012. The study finds that central bank independenceinflation nexus is dependent on the model, sample and estimation technique used. After accounting for various control variables and introducing inflation targeting as an additional explanatory variable, the study shows that, unlike in developed countries, CBI is not sufficient in achieving lower inflation in Africa and the developing world. However, common to developed, developing and African countries, is that, higher central bank independence is more effective in lowering inflation in the presence of high levels of banking sector development and institutional quality. The findings of the study also show that while stock market development enhances the effectiveness of CBI in developed and developing countries, it has no significant effect on CBI effectiveness in Africa.
The Economics and Finance Letters, 2021
Article History to determine the GDP per capita growth and inflation rates require total independence of the central bank of Ghana with threshold regression method. Per the analysis, it was observed that the impact of central bank independence is positively related to economic growth when the inflation threshold is less than 26.1% at a significance level of 5% with an elasticity coefficient of 0.07. On the other hand, when the inflation threshold is greater than or equal to 26.1% with an elasticity coefficient of 0.142 at a significance level of 1%, central bank independence is positively related to economic growth. Nonetheless, the GDP per capita (PPP) growth rate witnessed a decline from 5.8% in 2017 to 4.1% in 2018 and 4.0 in 2019, respectively. Evidently, the regression threshold was pegged at 5.8% or above to significantly impact economic growth when central bank independence is relatively improved. Furthermore, there is an inverse relationship between inflation variability, economic growth variability, and central bank independence. The earnest responsibility of politicians is to persistently safeguard, protect and ensure the implementation of central bank independence over time; perhaps the able requirement of government and politicians is to understand and explain ultimate reasons regarding the entrustment of power and authority to an independent monetary body to see to the well-being of forthcoming generations and present ones as well. Contribution/Originality: This study contributes to the existing literature but presents fresh evidence regarding the threshold analysis of inflation and GDP per capita in the central bank independence and economic growth nexus in Ghana. Moreover, the study on the backdrop of the political agency theory of central bank independence presents empirical analysis.
Measuring the Statutory Independence of Sub-Saharan Africa Central Banks
Eastern Africa Social Science Research Review, 2014
This study evaluated the degree of legal independence of 14 Sub-Saharan Africa central banks using the CWN (1992) approach. Central bank independence, i.e. freedom from political pressure in the conduct of monetary policy, is an attempt to overcome the inflationary bias inherent in the trade-off between inflation and unemployment reflected in the Phillips curve. Comprising,
Journal of Advance Management and Accounting Research
In Nigeria, an important issue that has engaged the attention of policy makers and the general public in recent past is the issue of appropriate autonomy for the Central Bank of Nigeria (CBN). The issue is not whether or not the Government should oversee the CBN but rather, which arm of Government should oversee the Bank – the Executive or the Legislature and to what extent. This paper examines this seemingly controversial issue from different perspectives and from an informed opinion concludes that while the CBN autonomy is essential, the issue of transparency and accountability in the conduct of the Bank's affairs remain imperative and CBN autonomy should not be misconstrued as latitude for frivolity and unwholesome dabbling, especially by the CBN leadership, into political matters at every turn of events.
Central Bank Independence and its Effect on Inflation Performance in the ESCWA Countries, 2011
In this study, we measured the central bank independence for all fourteen ESCWA countries using two indicators: the legal independence and accountability measure (the de jure measure) and the turnover rates of central bank governors (the de facto measure). The entire sample of countries is split into two subsamples: oil exporting and oil importing countries. The legal index shows that the central banks of Iraq and Palestine are the most independent central banks, while the central banks of Sudan and Syria are the least independent among both the oil exporting and oil importing countries respectively. The de facto measure shows that the central banks of Kuwait and Jordan are the most independent central banks while the central banks of Sudan and Egypt are the least independent among the oil exporting and the oil importing countries respectively. Our study reveals that the central bank independence has improved remarkably in the region since the 1980s and has closely followed the worldwide trend of granting central banks more independence from the executive branch. Our regression analysis proves that a higher degree of central bank independence would statistically improve the inflation performance in the entire region and in the two subsamples, basically by lowering the inflation rates level and decreasing volatility. Finally, our study pinpoints the legally weak provisions that contribute to low degrees of central bank independence; the study also recommends specific amendments that would significantly improve said independence in individual countries, the two subsamples, and the entire region.
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.