scholarly journals Central Bank Independence and economic crises: how both the fed and ECB managed to rely on unconventional monetary policies

2018 ◽  
Vol 12 (1) ◽  
pp. 335-348
Author(s):  
Mădălina Doroftei ◽  
Alexandru Pătruți
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Practical Importance ◽  
Central Banks ◽  
Central Bank Independence ◽  
Point Of View ◽  
Economic Downturn ◽  
Economic Crises ◽  
Monetary Policies ◽  
Long Run

Abstract The Central bank independence was viewed in the last decades as an essential prerequisite for ensuring good monetary policies. However, the global crisis of 2009 has shown that this concept was of little practical importance. The European Central Bank, which was built as one of the most independent central banks in the world, and the Federal Reserve System, a not so independent central bank from the point of view of legal independence, reacted in almost the same manner to the looming crises. Both of them used unconventional monetary policies, for which there was little theoretical support, to safeguard their economies. Quantitative easing, forward guidance and negative interest rate are now considered common instruments in the monetary authority’s arsenal. Moreover, central banks now have an extended goal, i.e. to provide financial stability. This means that they are expected to take action to prevent future economic crises by using monetary policy as a counter-cycle instrument. Given this important modification regarding the expected actions which must come from the monetary authorities, we argue that central bank independence becomes irrelevant in times of economic downturn, when they will use whatever means necessary to ensure financial stability. Political short run need will surpass long run stability as a priority for monetary decision makers.

scholarly journals Financial Independence of Central Bank through the Balance Sheet Prism

2014 ◽  
Vol 3 (2) ◽  
pp. 37-59 ◽  
Author(s):  
Valentina Ivanović
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Central Banks ◽  
Central Bank Independence ◽  
Financial Independence ◽  
Balance Sheets ◽  
Financial Strength ◽  
The Global Financial Crisis

Abstract The main reason for central bank independence lies in the fact that it is necessary to clearly distinguish spending money from the ability of making money. Independence of central banks is now a characteristic of almost all developed and highly industrialized countries. In this respect, it represents an essential part of the overall economic reality of these countries. Over the past decade or somewhat earlier, the issue of importance of central bank independence has been raised in developing countries, making the institutional, functional, personal and financial independence of central banks current topics for consideration. The key reason for the growing attention to financial independence of central banks is due to the effects of the global financial crisis on their balance sheets and therefore the challenges related to achieving the basic goals of the functioning of central banks - financial stability and price stability. Financial strength and independence of central banks must be developed relative to the policy and tasks that are carried out and risks they face in carrying out of these tasks. Financial independence represents a key base for credibility of a central bank. On one hand, the degree of credibility is associated with the ability of central banks to carry out their tasks without external financial assistance. In order to enhance the credibility of central bank in this regard, it must have sufficient financial strength to absorb potential losses and that power must be continuously strengthened by increasing capital and rearranging profit allocation arrangements. This is particularly important in times of crisis.

Central Bank Independence

2021 ◽  
pp. 39-67
Author(s):  
Patrick Njoroge ◽  
Désiré Kanga ◽  
Victor Murinde
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Financial Regulation ◽  
Central Banks ◽  
Central Banking ◽  
Central Bank Independence ◽  
First Century ◽  
Fiscal Discipline ◽  
Key Issues ◽  
Personal Accountability

The chapter covers central bank independence broadly and makes use of rich literature to bring out key issues on central bank independence from the inception of central banking in 1668 to the twenty-first century. The chapter identifies four measures of central bank independence mainly focusing on legal characteristics. The findings of the study point to benefits associated with independence of central banks, including management of inflation. Also, it is found that delegating monetary policy to an independent central bank increases debt sustainability and fosters fiscal discipline. It is noted that central bank independence needs to be reconciled with the requirements of institutional and personal accountability of the governors. Further, the financial regulation role should be strengthened in the mandates of central banks as the objective of price stability does not necessarily foster financial stability.

scholarly journals Interaction of Central Bank Independence and Transparency: Bibliometric Analysis

2020 ◽  
Vol 4 (2) ◽  
pp. 109-115
Author(s):  
Victoria Yuriivna Dudchenko
Keyword(s):  
Central Bank ◽  
Bibliometric Analysis ◽  
Financial Stability ◽  
Empirical Studies ◽  
Central Banks ◽  
Central Bank Independence ◽  
Google Trends ◽  
Scientific Discussion ◽  
Study Results ◽  
Central Bank Transparency

This paper summarizes the arguments and counterarguments within the scientific discussion on the central bank independence and central bank transparency interaction. he main purpose of the research is to define the substantial relationships between central banks’ independence and transparency based on scientific research results. Systematization literary sources and approaches for the definition of the central bank's independence and transparency indicate that there is no generalized approach to the hierarchy of these concepts. Existing empirical studies have shown that the independence and transparency of the central bank can be interconnected components to increase the effectiveness and flexibility to solve tasks regarding the provision of currency stability and financial stability in general. Methodological tools of the research methods are Google Trends and VOSviewer instruments. The presented results of an empirical analysis of trends regarding the dynamics of the search query number by the keywords “central bank independence” and “central bank transparency” show a decrease from 2004 to the present, with a significant predominance of central bank independence over transparency throughout the study period. The results of bibliometric analysis of keyword coincidence while writing scientific articles show that researchers of the central bank independence very rarely link its solution with the transparency aspects study, while researchers of central bank transparency often study this problem in direct connection with their independence analysis. Along with this, the issues of transparency of central banks are often studied simultaneously with the analysis of their independence. The research empirically confirms and theoretically proves that the central bank’s independence is the primary category that creates the conditions for the study of its transparency. The study results provide a scientific ground to study the strength and direction of the relationship between the levels of transparency and independence of the central bank, identifying quantitative indicators to describe these relationships and can be useful for further research to ensure the central bank efficiency. Keywords: Bibliometric Analysis, Central Bank, Coincidence, Google Trends, Independence, Interaction, Transparency, VoSviewer.

scholarly journals Developments in Monetary Policies before and after the Recent Financial Crisis and the Change in the Role of Central Banks

2014 ◽  
Author(s):  
Zekayi Kaya ◽  
Erkan Tokucu
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Policy Instruments ◽  
Central Banks ◽  
Price Stability ◽  
Lender Of Last Resort ◽  
Monetary Policies ◽  
Recent Financial Crisis

During the historical process, application of the monetary policies and the roles of the central banks have changed within the framework of the developments in the world economy, problems encountered and the economic policies as a solution to these problems. The financial crises after 1990 and the recent financial crisis as the biggest experienced one after 1930s, caused an increase in the importance of the task of providing financial stability besides price stability and in this context in the function of “lender of last resort” of the central bank. The crisis required using new policy instruments in addition to interest rate instrument which was not sufficient enough in providing financial stability and the roles of the central banks in providing financial stability changed. In this study, applications of monetary policies and the changing role of the central banks will be examined. Within this framework, traditional and non-traditional instruments will be explained and the problems that can be confronted by a central bank when providing price stability besides financial stability will be remarked.

scholarly journals The Effect of the Interest Rate Corridor Implementation to Central Bank Policies

2016 ◽  
Author(s):  
Mustafa Batuhan Tufaner ◽  
Kamil Uslu ◽  
İlyas Sözen
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Financial Stability ◽  
Policy Instruments ◽  
Central Banks ◽  
Price Stability ◽  
Ongoing Debate ◽  
Monetary Policies ◽  
Political Effects ◽  
The Interest Rate

Central banks fulfill missions like financing governments, contributing the improvement of the financial market and implement monetary policy. Because of these important functions, instruments of the central bank has become a subject of ongoing debate over the years. The Central Bank's monetary policies instruments are important in terms of achieving the set macroeconomics targets. In recent years to become a major focus of attention of the interest rate corridor instrument has led to examine the structure of the central banks. The interest rate corridor primarily, provides flexibility advantages through interest rate to the central banks. The opinion that the central banks which have a flexible structure are more successful on ensuring the price stability and implementing macro policies with evading the political effects became stronger. In this context, in this study to examine the contributions of a flexible central bank to price stability and financial stability. In this bulletin different policy instruments of central banks are compared and critically assessed various determinants of central bank flexibility. In addition, comparing of the legislation of major central banks and various interest rate corridor implementations are examined.

scholarly journals The Politics of Central Bank Independence

2019 ◽  
pp. 498-519 ◽  
Author(s):  
Jakob de Haan ◽  
Sylvester Eijffinger
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Central Bank Independence ◽  
Monetary Policies ◽  
Political Debates ◽  
Traditional Argument ◽  
Policy Measures ◽  
Recent Financial Crisis

This chapter reviews recent research on the political economy of monetary policymaking, both by economists and by political scientists. The traditional argument for central bank independence is the desire to counter inflationary biases. However, studies in political science suggest that governments may delegate monetary policy in order to detach it from political debates and power struggles. The recent financial crisis has changed the role of central banks, as evidenced by unconventional monetary and macro-prudential policy measures. Financial stability and unconventional monetary policies have stronger distributional consequences than conventional monetary policies, with implications for central bank independence. However, the authors’ results do not suggest that that has happened in the wake of the Great Financial Crisis, nor has there been higher turnover of central bank governors.

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.

scholarly journals Political Power in Central Banks Is Essential to Avert Future Economic Crises

2020 ◽  
Vol 1 (3) ◽  
Author(s):  
Yuhang Liu
Keyword(s):  
Central Bank ◽  
Economic Crisis ◽  
Financial Stability ◽  
Global Economy ◽  
Political Power ◽  
Central Banks ◽  
Capital Flow ◽  
Economic Crises ◽  
European Central

In the era of globalization, Central banks have posed important impacts in the global economy. The central bank plays an important role in managing financial stability and capital flow, and avoiding economic crisis. Every central bank plays an important role in the country or region where it is located. The role of central banks in the global economy is examined below. As a functional department of a country or a region, the central bank inevitably embraces political power. In the process of argument, this paper takes the European central banks as an example to determine that the central bank should exercise its political power when facing the problem of avoiding the possible economic crisis in the future.

scholarly journals Central Bank Independence and Financial Stability: Orthodox and Heterodox Approaches

2017 ◽  
pp. 6-27 ◽  
Author(s):  
Viktor Koziuk
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Institutional Environment ◽  
Central Banks ◽  
Central Bank Independence ◽  
Price Stability ◽  
Regulatory Regime ◽  
Financial Cycle ◽  
Stability Issues

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.

scholarly journals A historical analysis of central bank independence in Latin America: the Colombian experience, 1923-2008

2010 ◽  
Vol 28 (1) ◽  
pp. 83-102 ◽  
Author(s):  
Adolfo Meisel ◽  
Juan D. Barón
Keyword(s):  
Latin America ◽  
Central Bank ◽  
Historical Analysis ◽  
Central Bank Independence ◽  
Price Stability ◽  
Monetary Policies ◽  
The Relationship

AbstractThis paper explores the relationship between central bank independence and inflation in Latin America, using the experience of Colombia (1923-2008) as a case study. Since its creation, in 1923, Colombia’s central bank has undergone several reforms that have changed its objectives and degree of independence. Between 1923 and 1951, it was private and independent, with a legal commitment to price stability. In 1962, monetary responsibilities were divided between a government-dominated monetary board, in charge of monetary policies, and the central bank, which carried them out. In the early 1990s, the bank recovered its independence and its focus on price stability. Inflation varied substantially during these subperiods. Our analysis suggests that the central bank independence, combined with a commitment to price stability, renders the best results in terms of price stability.

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