Central bank independence, macroprudential policies and financial stability in the Mauritian context

Abstract

This research focuses on the operational autonomy of the Bank of Mauritius and the impact of macroprudential instruments on financial stability in the Mauritian context. Using an Autoregressive Distributed Error Correction Model (ARDL-ECM) over the period 1976 to 2019, it is observed that central bank independence (CBI) contributes towards credit growth, stock market volatility and exchange rate volatility. However, a negative link is found between CBI and economic growth. Our research also attempts to establish a link between macro-prudential policies and financial stability indicators. A negative relationship is thus drawn between macroprudential policies and the dependent variables of credit growth and stock market volatility, aligning our findings to the literature. At the same time, a positive link is outlined with exchange rate, whereas economic growth remains an insignificant factor.