Effectiveness of Central Bank Independence via Its Internal Characteristics

Reserve Requirements ◽

Formal Economy ◽

The Impact ◽

Macroeconomic Environment

This study examines central bank independence in developing countries of Latin America and Asia as well as selected developed countries. Many countries around the world, both developed and developing, have accepted the idea of central bank independence over the last several decades, so central banks have autonomy. A majority of studies has examined primarily the impact of central bank independence on inflation as promoting the theoretical benefits of a more stable and prosperous macroeconomic environment. However, there is only now sufficient data to empirically determine whether these claims are true. This research attempts to answer why developing economies with an informal sector resort to inflationary measures to finance their activities; how does a government induce an agent to choose the formal economy. In the trade-off between inflation and reserve requirements, the optimal policy is maximum inflation and minimum reserve requirements as increasing the steady-state utility of an optimizing agent. Also agents prefer the informal economy if policy relies on a maximum reserve requirement.

The external impacts of Central Bank independence

Revista Contabilidade & Finanças ◽

10.1590/s1519-70772010000300005 ◽

2010 ◽

Vol 21 (54) ◽

pp. 51-63 ◽

Cited By ~ 1

Author(s):

Carroll Howard Griffin

Keyword(s):

Central Bank ◽

Financial Crises ◽

Inflation Targeting ◽

Standard Procedure ◽

Developed Countries ◽

Central Banks ◽

The World ◽

The Impact ◽

Macroeconomic Environment

The term "central bank independence" (or abbreviated, CBI) can be broadly defined as the degree of freedom of the central bank to pursue monetary policy without interference from political considerations. The idea of central bank independence has been widely accepted over the last several decades by many countries around the world, both developed and developing. Since being first written about academically in the late 1980s, many countries have come to adopt this policy and many governments have come to recognize this as standard procedure. As such, many countries around the world granted autonomy to their central banks during the 1980s and 1990s. The majority of past studies have examined primarily the impact of central bank independence on inflation. however, the additional theoretical benefits are much more far reaching, the result of a more stable and prosperous macroeconomic environment. Additionally, there is only now sufficient data to empirically determine whether many of these claims are true. This study examines central bank independence in developing countries of Latin America and Asia as well as selected developed countries to determine what actual impact an autonomous central bank has had. It also examines such phenomena as financial crises (including the current global crisis of 2008-2009), inflation targeting, legal systems, country development and fiscal policy to determine the effects of these items on not only inflation, but the broad spectrum of macroeconomic outcomes. Although there is some empirical evidence to support the benefits of central bank independence, it is limited in scope to certain areas.

The Liquidity Trap, Democracy and Central Bank Independence

Annals of the Alexandru Ioan Cuza University - Economics ◽

10.2478/aicue-2014-0002 ◽

2014 ◽

Vol 61 (1) ◽

pp. 16-29

Author(s):

Lucian Croitoru

Keyword(s):

Financial Crisis ◽

Central Bank ◽

Developed Countries ◽

Central Banks ◽

The Other ◽

Quantitative Easing ◽

Potential Conflict ◽

Liquidity Trap ◽

Other Hand

Abstract In the wake of the financial crisis, central banks in developed countries performed unconventional operations that are fiscal in nature. On one hand, we support the view that such operations, which are not fully democratic, might lead to loss of central bank operational independence and discuss some difficulties that central banks might face when reversing quantitative easing. On the other hand, we show that, in the middle of a financial crisis, such operations are best performed by central banks. To avoid this potential conflict, the society needs to identify the best means by which the responsibility for quasi-fiscal operations implemented by the central bank is transferred to a democratic structure

Role of Central Bank Independence in Banking and Financial Stability Ensuring

Financial Markets Institutions and Risks ◽

10.21272/fmir.4(2).115-121.2020 ◽

2020 ◽

Vol 4 (2) ◽

pp. 115-121 ◽

Cited By ~ 1

Author(s):

Victoria Dudchenko

Keyword(s):

Developing Countries ◽

Central Bank ◽

Financial Stability ◽

Fixed Effects ◽

Developed Countries ◽

Stage Of Development ◽

Banking Stability ◽

This paper is devoted to defining the role of the central bank in ensuring banking and financial stability. The main purpose of the study is to assess the direction and strength of the impact of central bank independence in terms of its individual aspects on the parameters of banking and financial stability for different groups of countries. Systematization of literature sources and the results of existing empirical research has shown that the expected effects of increasing the independence of the central bank are to improve banking and financial stability. For the study, a sample of statistical data for 10 developed and 10 developing countries for the period 1991-2012 was formed. The methodological basis of the study were the tools of panel regression modeling with fixed effects with Stata software use. The article presents the results of empirical analysis, which showed that the independence of the central bank is an important factor in ensuring banking stability. At the same time, the impact on financial stability has not been conclusively confirmed. The study empirically confirms and theoretically proves that the stage of development of the country determines the strength of such influence. Thus, developed countries generally show closer links between central bank independence and banking and financial stability, which in most cases are directly dependent, while developing countries have less lasting effects. The results of the analysis of the links between certain aspects of central bank independence and the level of banking and financial stability are of great practical value. The results of the study create a scientific basis for substantiating the sequence of actions aimed at strengthening the independence of the central bank. Thus, in developing countries, the focus should be on defining and prioritizing central bank goals, while developed countries should take a deeper approach to this issue and ensure the independence of monetary policy and financial independence of the central bank. Keywords: central bank, independence, banking stability, financial stability, Z-score, non-performing loans, capitalization, developed countries, developing countries, panel data.

Financial crisis and central bank independence and governance (CBIG) in the Asia Pacific.

Corporate Ownership and Control ◽

10.22495/cocv8i2c2p7 ◽

2011 ◽

Vol 8 (2) ◽

pp. 313-335 ◽

Cited By ~ 1

Author(s):

Amirul Ahsan

Keyword(s):

Economic Growth ◽

Financial Crisis ◽

Central Bank ◽

Central Banks ◽

Central Banking ◽

Asia Pacific ◽

Positive Relation ◽

Crisis Period ◽

This paper examines the impact of financial crisis on central bank independence and governance in 36 Asia Pacific countries. It constructs a unique CBIG index for fifteen years (1991-2005); which has an overall index and six sub-indices covering all the necessary aspects of central banking operations. These indices are ranked first to measure the relative positions of the central banks and then statistically tested their relationship with inflation, economic growth and financial crisis of 1997. It applies a panel data pooled regression model and finds a robust negative relation of CBIG with inflation; moderate positive relation with economic growth; and CBIG in post crisis period is significantly different from the pre-crisis period.

The effectiveness of the inflation targeting regime as the basis for monetary policy in the conditions of crisis in the economy

Herald of Economics ◽

10.35774/visnyk2021.03.020 ◽

2021 ◽

pp. 20

Author(s):

Oleksandr Dziubliuk

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Large Scale ◽

Inflation Targeting ◽

Developing Economies ◽

Developed Countries ◽

Gradual Transition ◽

Monetary Regime ◽

Low Efficiency ◽

Introduction. Inflation targeting, as a commitment by the central bank to adhere to quantitative inflation rates, has become a fairly common monetary regime in the last few decades in developed countries and developing economies. However, the impact of the pandemic crisis on the course of economic processes has revealed serious problems associated with the low efficiency of this regime. Therefore, there is an objective need to re-evaluate the system in which the central bank focuses monetary regulation solely on price stability, ignoring other strategic directions of government policy related to the need to save economic activity and prevent a large-scale recession.Purpose. Clarification of the peculiarities of the implementation of monetary policy on the basis of the inflation targeting regime and identification of problematic aspects of this regime in the conditions of external shocks and the unfolding economic crisis.Methods. General scientific and empirical techniques and tools of economics, methods of analysis and synthesis, comparison, compilation and grouping are used.Results. The crisis indicates the need to build a monetary regime that would meet the interests of sustainable economic growth and social welfare. In Ukraine, there were no proper initial preconditions for the inflation targeting regime implementation. Therefore, adjusting the priorities of monetary policy in the crisis should reflect the gradual transition to a more flexible regime using monetary methods to support households and businesses, promote job creation, and stimulate aggregate demand.Prospects. Research of ways to increase the level of flexibility of monetary regulation, opportunities to expand the mandate of the central bank and improve the choice of optimal areas of influence on the economy with the help of monetary instruments at its disposal.

Optimal Inflationary and Reserve Requirement Policies: A Study of an Economy with an Informal Sector

International Journal of Banking and Finance - Vol. 15, Number 2, 2020 ◽

10.32890/ijbf2011.8.1.8419 ◽

2011 ◽

Author(s):

Hamid E. Ali

Keyword(s):

Steady State ◽

Informal Sector ◽

Informal Economy ◽

Developing Economies ◽

Reserve Requirement ◽

Trade Off ◽

Reserve Requirements ◽

Formal Economy ◽

Bank Money

Governments in developing economies often resort to taxing bank money balances through imposition of high reserve requirements and also by relying on seigniorage to finance their deficits. In the context of those practices, this research attempts to answer the following questions. First, why do developing economies with an informal sector resort to inflationary measures to finance their activities? Second, how does a government induce an agent to choose the formal economy? As to the first question on the trade-off between inflation and reserve requirements, it is shown that of maximum inflation and minimum reserve requirements will increase the steady-state utility of an optimizing agent. Regarding the second question, the agents prefer the informal economy if policy relies on a maximum reserve requirement.

Central bank independence, elections and fiscal policy in Africa

International Journal of Emerging Markets ◽

10.1108/ijoem-08-2018-0423 ◽

2019 ◽

Vol 14 (5) ◽

pp. 809-830 ◽

Cited By ~ 4

Author(s):

Abel Mawuko Agoba ◽

Joshua Yindenaba Abor ◽

Kofi Osei ◽

Jarjisu Sa-Aadu ◽

Benjamin Amoah ◽

...

Keyword(s):

Developing Countries ◽

Fiscal Policy ◽

Central Bank ◽

Institutional Quality ◽

Developed Countries ◽

Central Banks ◽

Content Type ◽

Fiscal Performance ◽

Fiscal Balance

Purpose The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa, accounting for election years, and also to examine whether the effectiveness of CBI in improving fiscal performance is enhanced by higher political institutional quality. Design/methodology/approach Using recent CBI data from Garriga (2016) on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, the authors apply a two stage system GMM with Windmeijer (2005) small sample robust correction estimator to examine the impact of CBI and elections on fiscal policy in Africa, other developing countries and developed countries. Findings The authors provide evidence that unlike in other developing countries and developed countries, CBI does not significantly improve fiscal performance in Africa. However, the effectiveness of CBI in improving fiscal performance in Africa is enhanced by higher levels of institutional quality. Although elections directly worsen fiscal performance in Africa, institutional quality enhances CBI’s effect on improving fiscal performance in election years across Africa, other developing countries and developed countries. Practical implications The findings of the study are significant as they provide insight into the benefits of having strong institutions to complement independent central banks in order to control fiscal indiscipline in election years. Originality/value The study is the first among the studies of CBI-fiscal policy nexus, to measure fiscal policy using net central bank claims on government as a percentage of GDP. In addition to the use of fiscal balance, this study also uses cyclically adjusted fiscal balance as a measure of fiscal policy. This is a critical channel through which independent central banks can constrain government spending. It also compares findings in Africa to other developing countries, noting some differences.

Financing Growth through Remittances and Foreign Direct Investment: Evidences from Balkan Countries

Journal of Risk and Financial Management ◽

10.3390/jrfm14030117 ◽

2021 ◽

Vol 14 (3) ◽

pp. 117

Author(s):

Esmeralda Jushi ◽

Eglantina Hysa ◽

Arjona Cela ◽

Mirela Panait ◽

Marian Catalin Voica

Keyword(s):

Developing Economies ◽

Central Banks ◽

Sustainable Growth ◽

Time Interval ◽

Foreign Direct Investments ◽

Factors Affecting ◽

Balkan Countries ◽

To Come ◽

Sustainable Economic Growth ◽

The ultimate goal of central banks, worldwide, is to promote the foundations for sustainable economic growth. In the case of developing economies, in particular, such objective requires time, huge efforts, attention, and plenty of resources in order to be accomplished to the fullest degree. This paper thoroughly investigates key factors affecting Balkan countries’ economic development (as measured by gross domestic product (GDP) growth), focusing especially on the impact of remittances. The analysis was done over an 18-year time interval (2000–2017) and builds on 144 observations. The data figures were retrieved from the World Bank database while two dummies were created to test the impact of the last financial crisis (2008–2012). Econometric tools were employed to carry out a broad analysis on the interdependencies that exist and, in particular, to determine the role of remittance income on growth. The vector auto regressive model was estimated using EViews software, and was used to come up with relevant insights. Empirical findings suggest the following: population growth, remittances, and labor force participation are insignificant factors for sustainable growth. On the other hand, previous levels of GDP, trade, and foreign direct investments (FDIs) appear to be relevant for the predictor. This research provides up-to-date conclusions, which can be considered during the decision-making process of central banks, as well as by government policymakers.

Central bank digital currency: the future of institutional changes in the banking sector

Fìnansi Ukraïni ◽

10.33763/finukr2021.02.026 ◽

2021 ◽

Vol 2021 (2) ◽

pp. 26-48

Author(s):

Volodymyr MISHCHENKO ◽

◽

Svitlana NAUMENKOVA ◽

Svitlana MISHCHENKO ◽

◽

...

Keyword(s):

Central Bank ◽

Financial Stability ◽

Banking Sector ◽

Central Banks ◽

Credit System ◽

Bank Supervision ◽

Bank Of China ◽

Digital Currency ◽

Financial Monitoring ◽

The purpose of the article is to reveal the essence and features of the introduction of digital currency of central banks and their impact on the conditions of monetary policy, financial stability, as well as institutional transformations in the development of national banking systems. The study is based on an analysis of projects of issuance and use of digital currencies of the ECB and central banks of leading countries, as well as the results of pilot projects of the National Bank of China on the use of the digital yuan and NBU on the e-hryvnia circulation. It is proved that digital currency of the central bank should be considered as a new dematerialized form of national currency in addition to cash and non-cash forms. Particular attention is paid to the study of the impact of the use of digital currency by central banks on the main parameters of economic policy. The main directions of potential influence of digital currency use on transformation of mechanisms of realization of monetary, budgetary and tax, macroprudential policy, maintenance of financial stability, activization of action of channels of the monetary transmission mechanism, and also on reforming of system of the state financial monitoring and bank supervision are substantiated. It is determined that one of the consequences of the use of digital currency will be the ability to ensure full control over all monetary transactions, which will help reduce the shadow economy and corruption. Structural and logical schemes of centralized and decentralized models of issuance and circulation of digital currency of central bank have been developed, directions of changes in the structure and functions of commercial and central banks, as well as in the structure of the financial and credit system in general have been substantiated.

Testing for Asymmetric Central Bank Preferences

International Journal of Economics and Finance ◽

10.5539/ijef.v10n4p25 ◽

2018 ◽

Vol 10 (4) ◽

pp. 25

Author(s):

Felix S. Nyumuah

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Developed Countries ◽

Central Banks ◽

Policy Implications ◽

Less Developed Countries ◽

Reaction Function ◽

Policy Rule ◽

Asymmetric Preferences ◽

Policy Reaction Function

The linear specification of the ideal monetary policy reaction function has been questioned in recent times by researchers. They have suggested a nonlinear framework where central banks exhibit asymmetric behaviours. Despite the important policy implications of having asymmetric central bank preferences, studies have been on single-country basis focusing almost entirely on advanced economies. The aim of this study is to check the existence of asymmetric preferences on the part of central banks in the context of a panel of countries and not just a single a country. The study derives and estimates a nonlinear flexible optimal monetary policy rule, which permits zone-like as well as asymmetric behaviours using panel data from a range of countries both developed and less developed. Although the findings indicate the presence of asymmetric preferences on the output gap across less developed countries, generally, the evidence is in favour of a linear policy reaction function and symmetric central bank preferences. These findings mean that monetary policy is characterised by a linear policy rule and symmetric central bank preferences. The results also indicate that interest rate ‘smoothing’ reaction by monetary authorities is more pronounced in less developed countries than in developed ones.