Some Aspects of Actual CBI and Inflation in the Countries of Southeast Europe

Damir Piplica,Ivo Speranda,Zvonimir Josip Perkovic

doi:10.14254/1800-5845/2018.14-2.3

Abstract

Although the countries of Southeast Europe are connected in many ways, there are a lot differences among them with reference to development of the market economy, and especially in the way of conducting of the monetary policy and achieving of the price stability. The subject of this article's research is the actual central bank independence and its impact on monetary stability in the specific environment of Southeast European countries. Therefore, we applied it TOR as a research method because shorter average duration of the mandate of a central bank governor can be an obstacle for conducting of the monetary policy in the long run, as in such a case central bank would be less interested in obtaining its primary goal – keeping of monetary stability. The main hypothesis in this study is that there was a significant influence of the actual central bank independence to monetary stability, regardless of different implementations of the monetary policies of the central banks of the observed countries. We have used statistical methods to prove the hypotheses and then we gave an adequate explanation of the research results. The result of our research has shown that in the period 2000-2016, despite their differences, actual independence of the respective central banks was strengthening, while the inflation rate in the countries of the Southeast Europe was decreasing, but the connection between the two was weak. However, we have established that in the Southeast European countries in the end relatively higher degree of the actual independence of their central banks has been obtained, as well as lower inflation rate in 2016, while their negative correlation has become very strong. The observed countries can have obtained their monetary stability greatly thanks to the higher degree of the actual independence of their respective central banks, but at the same the independence by itself is not enough to keep the inflation rate at the desired rate, like the one requested by Maastricht's criteria. In modern circumstances lower inflation rate can depend on some other factors, such as political lobbies, mutual adjustment of fiscal and monetary policies, imperfection of the labour market, national culture of the inflation, etc.

Highlights

A few decades back most of the central banks in the world were under a strong political influence of the government and they had no independence, or the independence was of a very low level in conducting of the measures of the monetary policy
The subject of this article's research is the actual central bank independence and its impact on monetary stability in the specific environment of Southeast European countries. We applied it transition countries (TOR) as a research method because shorter average duration of the mandate of a central bank governor can be an obstacle for conducting of the monetary policy in the long run, as in such a case central bank would be less interested in obtaining its primary goal – keeping of monetary stability
The result of our research has shown that in the period 2000-2016, despite their differences, actual independence of the respective central banks was strengthening, while the inflation rate in the countries of the Southeast Europe was decreasing, but the connection between the two was weak

Summary

INTRODUCTION

A few decades back most of the central banks in the world were under a strong political influence of the government and they had no independence, or the independence was of a very low level in conducting of the measures of the monetary policy. Bade and Parkin (1982) have conducted their research of 12 OECD countries and they have calculated the level of the independence of their central banks for the period 1951-1975 They have established that the central bank independence have negative influence to the inflation rate. While researching elements of the central bank independence, Rogoff (1985) has established that its Governor has conservative approach to the monetary policy, i.e. more important meaning in its conduction should be directed to the price stability instead some other goals of the economic policy, such as increasing of the employment rate, economic growth, etc. A unique historic period, such as transition of socialist economies into modern market economies created at the same time new opportunities for researching of certain social and especially economic phenomena together with their specific characteristics These circumstances differed greatly when compared to conditions where monetary policy was conducted by central banks of developed countries. Cargill (2016) thinks that the central bank independence is only a myth and he states that: „The conventional wisdom so widely accepted in the academic literature is based on a confused perception of independence that fails to distinguish between legal (de jure) and actual (de facto) independence.“ Many other authors have researched central bank independence and its influence to the monetary stability, but we have pointed out only authors important to the context of this conducted research

APPLIED MODEL AND MEASUREMENT OF THE ACTUAL CENTRAL BANK INDEPENDENCE

ACTUAL CENTRAL BANK INDEPENDENCE IN THE COUNTRIES OF SOUTH EAST EUROPE – APPLICATION OF TOR ANALYSES

Influence of the Actual Central Bank Independence to Inflation in the Countries of Southeast Europe

Findings

CONCLUSION