Central Bank Independence - Economic and Political Dimensions

2006 ◽  
Vol 196 ◽  
pp. 66-76 ◽  
Author(s):  
Ottmar Issing
Keyword(s):  
Political Economy ◽  
Monetary Policy ◽  
Central Bank ◽  
Public Support ◽  
Governance Structure ◽  
Central Banks ◽  
Central Bank Independence ◽  
Price Stability ◽  
Special Role ◽  
Political Dimensions

This article reviews the empirical evidence and theoretical arguments for central bank independence, including political economy considerations. It concludes that the optimal institutional framework to keep inflation lastingly under control is based on granting independence to central banks and establishing price stability as the overriding objective of monetary policy. This framework — combined with appropriate appointment procedures, a sound governance structure and a well-defined monetary policy strategy of the central bank — would ensure price stability. Finally, public support for central bank independence also matters. In this respect, the central bank has a special role in nurturing a stability-oriented culture in society.

scholarly journals MACROFINANCIAL RESPONSIBILITY OF CENTRAL BANKS: THEORETICAL FOUNDATIONS AND INSTITUTIONAL DILEMMAS

2017 ◽  
pp. 139-157
Author(s):  
Viktor KOZJUK
Keyword(s):  
Political Economy ◽  
Central Bank ◽  
Financial Stability ◽  
Institutional Design ◽  
Policy Instruments ◽  
Central Banks ◽  
Central Bank Independence ◽  
Macroeconomic Fluctuations ◽  
Price Stability

Introduction. Postcrisis tendency to enhance central bank’s macrofinancial responsibility should be related to real-financial inter-linkages rethinking but not to activistic demand management. Different approaches on how price stability and financial stability are inter-related, as well, as different institutional modalities of how to achieve them are making more complicate optimal institutional design of central bank with increased zone of responsibility. Purpose. Taking into account different macroeconomic viewpoints on the role of financial instability in macroeconomic fluctuations and institutional challenges for central bank independence the purpose of the paper is to validate that enhanced macrofinancial responsibility of central banks should be balanced by additional measures in direction to facilitate autonomous regulatory status. Results. Different views on how to enhance macroeconomic stability and what the role of central banks in new macrofinancial environment provide serious challenge for optimal designing of central bank’s macrofinancial responsibility. The problem not only relate to how price and financial stability are inter-related but also to how define the wrong way policy then price and financial stability are in non-linear relations. The difficulties in this segment may affect far reaching political consequences while assessing central bank from political economy point of view. Also it is necessary to take into account that macroprudential toolkit may overlap with monetary policy instruments providing additional regulatory distortions. Clear institutialisation of relations between price and financial stability responsibilities will help to avoid political economy type of manipulations with central bank new tasks. Priority of price stability should be kept while financial stability mandate should be clarified and tied to macroprudential regulation. In the same time more active central bank’s participance in the post-crisis economy should be based not on standard Keynesian activism but on enhanced financial responsibility balanced with protection of central bank independence in new regulatory areas. Conclusions. It the article it is stressed that enhanced macrofinancial responsibility should be based on unchanged priority of price stability mandate, increased level of central bank independence and coordination between monetary and macroprudential policies. It is shown that vulnerability of macrofinancial responsibilities to political pressure is going to increase. Political independence of central banks should protect them in the area of price stability and financial stability all together.

Analysis of the Analytical Balance Sheet of Central Bank of Republic of Turkey During 2000 - 2009 Period in Terms of Crises

2014 ◽  
pp. 1284-1302
Author(s):  
Yıldız Özkök
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Balance Sheet ◽  
Central Banks ◽  
Money Market ◽  
Price Stability ◽  
Primary Target ◽  
Monetary Aggregates ◽  
Analytical Balance ◽  
Republic Of Turkey

Today, Central Banks' primary target is to maintain the price stability. In that context, through their monetary policy, they intervene in the money market with different tools. The Analytical Balance Sheet was created upon summing up and offsetting Balance Sheet of the Central Bank of Republic of Turkey (CBRT) in order to represent specific monetary aggregates. By means of that, CBRT aims to make the balance sheet more understandable and simple. In this chapter, firstly the sub items of the Analytical Balance Sheet are explained; secondly, the economic crises of Turkey during 2000-2009 is mentioned; finally, effects of these crises on the CBRT's Analytical Balance Sheet, changes in monetary aggregates which are Currency Issued, Reserve Money, Monetary Base, and Central Bank's Money, and in this context structure of the monetary policy of the CBRT in this period is analyzed.

scholarly journals Central Bank Independence and Inflation IN EU-28

2017 ◽  
Vol 22 (4) ◽  
pp. 253-262
Author(s):  
Daniela-Georgeta Beju ◽  
Maria-Lenuţa Ciupac-Ulici ◽  
Codruța-Maria Fǎt
Keyword(s):  
European Union ◽  
Central Bank ◽  
Monetary Union ◽  
Central Banks ◽  
Central Bank Independence ◽  
Price Stability ◽  
Economic And Monetary Union ◽  
Great Level ◽  
Member States ◽  
High Level

Abstract Today, both policymakers and academicians consider that the central bank’s main goal is to guarantee price stability. The central bank can sustain the government’s economic policies, but only without prejudicing this objective. In order to focus on price stability several studies found that central bank should have a high level of independence. This is why during the recent decades the majority of developed countries, but also several emerging economies have employed institutional reforms that conferred their monetary authorities – the central bank – more independence. Within the European Union the central bank independence is a crucial issue, since the Maastricht Treaty stipulates that one requirement for joining Economic and Monetary Union for the candidate member states is to give their central banks a sufficiently high level of independence. This official requirement has encouraged the countries from Centre and East Europe engaged on the way to adhere the Economic and Monetary Union to confer their central bank a great level of independence. In this paper we analyze some important theoretic issues about central bank independence. We also make an empirical investigation regarding the evolution of inflation within European Union relative to the independence of member states’ central banks.

scholarly journals The price stability oriented monetary policy of the European Central Bank

2010 ◽  
Vol 13 (3) ◽  
pp. 5-15
Author(s):  
Wojciech Gasiński ◽  
Anna Misztal
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
European Central Bank ◽  
Central Banks ◽  
Primary Objective ◽  
Price Stability ◽  
Economic Policies ◽  
European Central ◽  
Consumer Prices ◽  
European System

The aim of this paper is to present the price stability oriented monetary policy of the European Central Bank. The European Central Bank began activities in 1998 and the primary objective of the European System of Central Banks is to maintain price stability and the ESCB should also support the general economic policies in the Community. Monetary policy is a special tool that national governments and central banks uses to influence on its economy, especially to control the supply of money and to influence on the level of economic indicators. This paper investigates the assumed objective of the European System of Central Banks which is to maintain price stability. What is more, we would like to present the monetary policy strategy of the European Central Bank and analysis of the Harmonized Index of Consumer Prices.

Analysis of the Analytical Balance Sheet of Central Bank of Republic of Turkey During 2000 - 2009 Period in terms of Crises

2013 ◽  
pp. 110-127
Author(s):  
Yildiz Özkök
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Balance Sheet ◽  
Central Banks ◽  
Money Market ◽  
Price Stability ◽  
Primary Target ◽  
Monetary Aggregates ◽  
Analytical Balance ◽  
Republic Of Turkey

Today, Central Banks’ primary target is to maintain the price stability. In that context, through their monetary policy, they intervene in the money market with different tools. The Analytical Balance Sheet was created upon summing up and offsetting Balance Sheet of the Central Bank of Republic of Turkey (CBRT) in order to represent specific monetary aggregates. By means of that, CBRT aims to make the balance sheet more understandable and simple. In this chapter, firstly the sub items of the Analytical Balance Sheet are explained; secondly, the economic crises of Turkey during 2000-2009 is mentioned; finally, effects of these crises on the CBRT’s Analytical Balance Sheet, changes in monetary aggregates which are Currency Issued, Reserve Money, Monetary Base, and Central Bank’s Money, and in this context structure of the monetary policy of the CBRT in this period is analyzed.

A Post-Keynesian Perspective on the Rise of Central Bank Independence

2013 ◽  
pp. 264-289
Author(s):  
Joerg Bibow
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Monetary Economics ◽  
Central Banks ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Economic And Monetary Union ◽  
Wide Range ◽  
Historical Role ◽  
The One

Central bank independence (CBI) refers to the relation between the central bank and the state, the legislature and executive. In practice, central banks typically engage in a wide range of activities related to the currency sphere and the financial system. The mainstream literature popularizing CBI features a “narrow central bank” approach that concentrates on central banks’ monetary policy functions only, ignoring important interdependencies between monetary policy on the one hand, and central banks’ historical role as government’s banker (as one link to fiscal policy) and their role in safeguarding the financial system’s stability on the other. This chapter investigates the rise in CBI as an apparent success story in modern monetary economics. The worldwide rise in CBI is partly due to the advent of Economic and Monetary Union (EMU) in Europe. This chapter also discusses the time-inconsistency argument for CBI, post-Keynesian criticisms of CBI, and whether John Maynard Keynes’s model of CBI strikes a sound balance between democracy and efficiency.

On the meaning of central bank independence

1998 ◽  
Vol 1 (2) ◽  
pp. 254-267
Author(s):  
G. M. Wessels
Keyword(s):  
Economic Policy ◽  
Central Bank ◽  
Policy Making ◽  
Public Support ◽  
Central Banks ◽  
Democratic Society ◽  
Central Bank Independence ◽  
Economic Independence ◽  
Absolute Sense ◽  
Relative Independence

This article aims to clarify the meaning of the multifaceted term central bank independence. Such independence cannot be understood in an absolute sense, because the elected government in a democratic society remains the highest authority in respect of economic policy-making too. Nevertheless, central banks globally are currently endowed with strong relative independence. This may be separated into two broad categories, namely formal and informal independence. Political and economic independence are identified as elements of the former, and their various subcategories are expounded below. Informal independence is then highlighted as the more important component of independence, of which personalities, professionalism and public support are crucial. However, an ideal combination of the determinants of independence is hard to find.

Readiness to introduce digital currency: is the central bank independence important?

2021 ◽  
Vol 2021 (3) ◽  
pp. 7-22
Author(s):  
Viktor KOZIUK ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Development ◽  
Multivariate Regression ◽  
Empirical Test ◽  
Central Banks ◽  
Central Bank Independence ◽  
Quadratic Functions ◽  
Narrow Focus ◽  
High Level

The paper put forward the hypothesis suggesting that central bank’s advances on the way of CBDC projects depend on the level of their independence. At the same time, the theory demonstrates some ambiguity of how to interpret independence in respect of CBDC involvement especially in the case of empirical tests because indexes of central banks independence are tailored to the assessment of relations between monetary authorities’ status and inflation. A high level of the central bank independence index rank may mean a narrow focus on monetary policy, while a low level of independence may mean a lack of resources to be allocated to execute the innovative projects. To avoid such theoretic ambiguity in the empirical test the linearly and quadratic functions are applied in the case of the central bank independence proxy. Such proxy is added by proxies for economic development, innovations and financial development. The role of political regimes is also examined. The empirical results show that the intermediate central banks independence level might play the role in how deeply central banks are plunged in CBDC projects. The Intermediate level is interpreted as a situation when central banks operate with enough financial independence to realize innovative projects but scope of responsibilities goes beyond a narrow focus on monetary policy. But central banks status proxy is valid in the multivariate regression. The most statistically significant driver of advances toward CBDC is financial development. Proxy for innovations is valid only in the univariate regression. In the case of multivariate regression the innovation capacity of the country is less important than financial development and central bank’s status.

Trust, But Verify: The Road Ahead

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Policy Instruments ◽  
Central Banks ◽  
Central Banking ◽  
Price Stability ◽  
The Road ◽  
The Past ◽  
Economic Downturns ◽  
More Care

Taking stock of the past fifteen years in monetary policy leads to some conclusions and suggestions for reform. Contrary to the claims of some observers, price stability remains an unassailable goal of central banks. Reforms are needed in their governance, however. In particular, legislation ought to include more directives to make clear the conditional relationship between government and the central bank. Unconventional central bank policies are no longer so unconventional. While they should be included in the toolkit of policy instruments, they should be used with more care. Some central banks have overreached and have confused the need to put a floor on economic downturns with the need for economic growth to rise to levels deemed normal. Data dependence as a policy stance reflects one of the biggest failures of central banking. After more than a decade of explaining the forward-looking nature of monetary policy, a backward-looking perspective seems to dominate policy discussions.

Central Bank Independence, Disinflations and Monetary Policy

2008 ◽  
Vol 10 (3) ◽  
pp. 1-20 ◽  
Author(s):  
Ian Down
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Central Bank ◽  
Central Banks ◽  
Central Bank Independence ◽  
Two Measures

Analyses of central bank independence (CBI) have generated two sets of apparently contradictory results - CBI appears to be both inversely related to inflation and positively related to the rise in unemployment and slowdown in economic growth during disinflations. I suggest that these results may issue from autonomous central banks being associated with sharper, more aggressive disinflations. To test the proposition I use two measures of policy stance, one of which contains more information concerning policymaker's expectations than has heretofore been the case. The results suggest a need to qualify yet further the optimality of CBI.

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