Central Bank Autonomy Research Articles

Unveiling dependency: A critical look at Angola’s Central Bank autonomy

The aforementioned study takes an approach linked to the National Bank of Angola, on the topic of autonomy and dependence of the Central Bank of Angola, highlighting its objective of examining the relationship between the international reserves of the Central Bank of Angola (CBIR) and the ratio of GDP and the economic growth rate, by carrying out an extensive time series analysis from 1990 to 2023. The study aims to identify the short-term linkages and long-term equilibrium dynamics in Angola's economic landscape, focusing on understanding of the complex dynamics of these variables. The results show strong short-term correlations between the CBIR, the GDP ratio and the economic growth rate, suggesting possible adjustment processes and interactions between these variables. Furthermore, analysis of long-run equilibrium relationships reveals strong correlations between the GDP and CBIR relationship, indicating a noteworthy and affirmative relationship and its relationship with macroeconomic performance has been concentrated in the emerging markets of Asia and Latin America, as well as in the main industrialized nations. The correlation study highlights the complexity of Angola's economic dynamics, revealing only small connections between variables. These revelations have important ramifications for academics and politicians who want to support Angola's sustainable economic development.

Central bank power without central bank autonomy?

AbstractLeon Wansleben’s new book, The Rise of Central Banks, explains how central banks have emerged as powerful monetary governors over the past half-century. Yet the book’s recognition that central banks cannot extricate themselves from quantitative easing and market bailouts begs the question: what does it mean for central banks to be dominant but captive? In this commentary, I identify the book’s ambiguities with the concept of infrastructural power the book draws from Michael Mann. Unless the dynamics of state-market interdependence are well specified, giving due attention to the sources of both public and private power, it is unclear what kind of agency central bankers are exercising if they lack sufficient autonomy to act in the public interest.

Socio-Legal Foundations of Brazilian Central Bank's Autonomy - 1999-2020

Resumo Entre 1999 e 2020, o Banco Central do Brasil - BCB contou com um regime de autonomia operacional, mas, diferentemente da regra geral dos demais bancos centrais, seus dirigentes não contaram com um mandato funcional estabelecido em lei. Como explicar o funcionamento desta autonomia sem a existência de uma garantia legal? O artigo procura responder a esta questão realizando um estudo de caso em profundidade em que analisa a governança e a atuação do BCB. Seus achados confirmam a hipótese de trabalho de que uma complementaridade institucional de três fatores desempenhou o papel de substituto funcional de um mandato estabelecido em lei, são eles: a organização weberiana do BCB, as suas coalizões externas de proteção e a capacidade regulatória adquirida pela autarquia. A organização weberiana garantiu coesão à burocracia e limitou o controle político exercido por meio das nomeações; as coalizões externas reforçaram os poderes do BCB dentro do Estado e a capacidade regulatória institucionalizou a atuação do BCB, o que reforçou um comportamento deferente das demais autoridades em relação às suas políticas.

Central Bank Autonomy and Stock Market Index in Nigeria: An ARDL and TYDL Granger Causality Approach

Following the trend of granting autonomy to monetary authorities around the world beginning from the mid-1900s, the Central Bank of Nigeria had its share of gradual autonomy from 1991 culminating in the 2007 legislation. This study investigated the effect of central bank autonomy (CBA) on the stock market index (SMI) in Nigeria with data on market index, foreign direct investment (FDI), gross domestic product per capita, inflation rate, terms of trade, trade openness and effective central bank autonomy index from 1985 to 2018. The study adopted the autoregressive distributed lag and Toda–Yamamoto and Dolado–Lutkepohl approach to Granger causality. The study finds that there is no long-run relationship between the variables estimated, though short-run relationships exist. CBA has a statistically negative impact on the SMI, while FDI has a positive significant relationship with the SMI only in the short run. The only significant causality runs from FDI to SMI. The study, therefore, recommends that the Central Bank of Nigeria should have a higher level of instrument autonomy and should endeavour to come out with monetary policies that encourage diversification of the economy and engender growth in the capital market.

Executives' perceptions of risk management disclosures and its determinants: a developing country perspective

PurposeThe paper aims to provide insights into executives' perceptions of risk management disclosures and such disclosures' determinants. The paper extends the emerging literature by using institutional theories in the context of a developing country.Design/methodology/approachSemi-structured in-depth interviews were conducted with 36 executives directly involved in risk management disclosures, policy-making and monitoring.FindingsThe interview data show evidence that corporate risk management disclosures are still at a low level. The reasons for non-disclosure can be related to institutional weaknesses, lack of disciplinary action and political interference. Additionally, central bank autonomy, limited perception of accountability, demand from influential stakeholders, lack of financial literacy, aim to keep annual reports brief, etc. results in the dearth of risk disclosure by the banks.Research limitations/implicationsThe study suggests that understanding the importance of risk management disclosures and preparing for the uncertainty will keep the business moving.Originality/valueThe study seeks to contribute to the literature by investigating the executives' perceptions of risk management disclosures and its' determinants in the context of a developing country where non-compliance to the regulatory standard is high.

The Fiscal Dimension of Monetary Policy and Central Bank Autonomy: Lessons from Two Crises

The Fiscal Dimension of Monetary Policy and Central Bank Autonomy: Lessons from Two Crises

Mesure de l’évolution de l’indépendance légale de Bank AL Maghreb selon indice de Jâcome 2001

This article proposes to assess the degree of independence of Bank Al Maghrib (BAM), according to the index developed by Jacome (2001). The interest of this exercise emanates from an important observation: rare studies have evaluated the degree of independence of BAM after the entry into force of the statutes of 2006 (law 70-05) and the Moroccan central bank has changed. A second time its statutes in 2019 (law 40-17). To assess the degree of jury independence of BAM, we will use the index developed by Jacome (2001). This index is based on 10 variables, key to the independence of central banks, and the weight of each variable depends on its importance for the autonomy of central banks and the conduct of monetary policies. The results obtained show that the degree of independence of BAM has increased considerably with the statutes of 2006 (law 76-03) and that the statutes of 2019 have consolidated this important degree of independence by deepening it further. However, the results obtained remain to be qualified and completed by evaluating the de facto independence of BAM, because the interest of jury independence depends on its translation into the facts which itself depends on several factors in particular the degree of respect for the law in a society

Central bank independence, fiscal deficits and currency union: Lessons from Africa

Can central bank independence (CBI) help to reduce fiscal balances? In this paper, we answer this question using novel measures of CBI based on the turnover rate of central bank governors (TOR) and the Garriga measure of legal independence for 30 African countries for the period 1990–2017. Our novel measures of CBI capture the degree of alliance between the fiscal authority and the monetary authority which can potentially lead to debt monetization and higher fiscal balances. Thus, we classify central bank governor changes into ally changes or non-ally changes; in addition to that, we decompose our full sample into CFA zone countries and non-CFA zone countries to capture the effect of currency union membership. Our results show that for CFA zone countries, central bank autonomy, when proxied by the turnover rate of central bank governors, is associated with a decrease in fiscal balances and replacing a central banker with a non-ally, is negatively and significantly associated with fiscal balances.

COVID-19, Seignorage, Quantitative Easing and the Fiscal-Monetary Nexus.

The huge fiscal expansions triggered by the corona crisis raised debt/GDP ratios to very high levels. This led some economists to reconsider the taboo on seignorage. Following a brief documentation of the crisis impact and aggregate demand policies responses the paper discusses views of academics and policymakers on seignorage. Optimal taxation considerations imply that the decision on allocating deficit financing between debt and seignorage falls within the realm of fiscal authorities—a fact that infringes on central bank (CB) autonomy. The paper explores ideas aimed at improving the tradeoff between those two principles. Implication of cross-country variations in the need to use seignorage is discussed. Comparison of the indirect contribution of quantitative easing (QE) to deficit financing with the direct contribution of seignorage implies that QE is a substitute to seignorage that preserves central bank dominance without much change in existing monetary institutions. Comparison of empirical evidence from the USA during the global financial crisis with the post-WWI German inflation supports the view that for countries experiencing deflationary pressure seignorage is more potent in moving inflation toward its target than QE. Given the current outlook temporary use of seignorage does not appear to involve a substantial risk of inflation.

Political influence, central bank independence and inflation in Africa: A comparative analysis

This paper develops a new de facto measure of central bank independence (CBI) based on two recent measures of the turnover rates of central bank governors introduced by Vuletin and Zhu (2011), complemented with measures of alliance with the government in power, captured by prior executive appointment, tribe proximity, and political party affiliation. Using 1980–2009 data from 13 countries from the CFA zone (a currency union) and 18 non-CFA countries, the new index is used to 1) examine whether CBI can help achieve price stability in Africa and 2) show how CBI affects African countries that are part of a monetary union. We find that higher turnover rates lead to higher inflation. Our results are robust to the decomposition of the turnover rates into premature removals and ally replacements. Furthermore, we find that for CFA zone countries, central bank autonomy has no effect on inflation and instead inflation is driven by other variables such as the fixed exchange rate regime or commodity price shocks.

The Political Economy of South Africa’s constitutional road to Central Bank Independence (1993–1996)

Many countries across the world, including on the African continent, legislated increased independence for their central banks since the early 1990s. The way in which this happened took different forms. In some cases these legal processes were wrapped either into constitutional reforms in the context of democratic transitions or into economic reforms that changed the strategic direction of their development. This research note provides a fresh assessment of the affirmation of central bank autonomy and independence in South Africa during the period of constitutional negotiations up to the country’s first democratic elections in 1994. Although the independence and autonomy of the SA Reserve Bank (SARB), the central bank of the country, are enshrined in its Constitution, little has been written about the ideas and processes that culminated in such inclusion in the Constitution, in itself an unusual step at that time. This note addresses this void in the literature. The affirmation of central bank autonomy and independence (CBI) from political interference coincided with similar processes at that time in other developed and middle-income developing countries. In South Africa the decision taken at the time of the constitutional negotiations to grant the SARB its independence followed on an unfortunate history of government intervention in the central bank in the 1980s. In this research note we analyse some key documents on this policy debate, previously undiscovered, and present the views of a range of key actors in the negotiations process. Some economic policy think tanks such as the Economic Trends Research Group, and the Industrial Strategy Project, did not have a view on the matter of CBI, as far as we could gather. Our conclusions, based on this new evidence, are both surprising and unexpected. SARB independence was enshrined in the Constitution, we show, as much ‘by accident than by design’.

Merkez Bankası Bağımsızlığının Makroekonomik Göstergeler Üzerine Etkisi: Türkiye Örneği (1990-2018)

Central banks are the most important institutions that enable countries to implement monetary policy. Central bank autonomy is defined as keeping away from the pressures of the government while making and performing decisions on monetary policy. Existence of developed financial markets and being focused on price stability by monetary policy are among the essential conditions in terms of central bank autonomy. Monetary and fiscal policies should be determined and implemented so as to provide economic stability. Accordingly, it was aimed in this study to scrutinize the effects of autonomy of Central Bank of Turkey (CBT) on macroeconomic variables for the period of 1990-2018. It is concluded when the obtained data are analyzed that there occurs a positive impact by the guarantee of both legal and actual autonomy of CBT.

INSTITUTIONAL BARRIERS TO THE ANTI-INFLATION EFFICIENCY OF INDEPENDENT CENTRAL BANKS: A POLITICAL-ECONOMIC ANALYSIS

The paper reviews institutional factors of independent central banks success. This problem is rooted in cases when fractionalized societies and societies with weak institutions adopt autonomy of central banks mostly legally. It is highlighted that lack of rule of law and fractionalization of society may be viewed as competitive hypotheses to explain why actual independence deviates from legal one. The paper establishes that increase in the level of central banks independence without political support for independent monetary policy is possible only if institutional quality reaches the necessary threshold that is sufficient for activating structural reforms but insufficient for ensuring that there is no influence on the policy from the side of different institutional distortions. It is found that political regime, rule of law and structure of society constitute more complicated institutional framework for independence of monetary institutions. Due to this, the main question is whether the central bank is included in the limits of oligarchical consensus or not. If yes, then the rule of law does not matter for acquiring legal independent status. If no, then the rule of law is the core requirement for actual independence. Moreover, the rule of law in most cases may compensate the problem of structural heterogeneity of the society.

Central Bank Independence, Economic Growth and Inflation: Theories and Empirical Validations

Economics theory’s assumption is that a central bank's independence from political power entails a split between political and monetary power. Such a split is unavoidable in order to control price instability without harming other macroeconomic variables such as growth or unemployment. The theory calling for central bank autonomy, started as early as the 1970s and still gaining ground, assumes the role of central banks as an arrangement sin qua non for tying the hands of government and consequently reducing inflationary bias, or even eliminating this scourge. Moreover, such a debate is mostly relevant for monetary policy, because of its inherent incredibility. Then, our aim in this study is to test the relevance of an anti-inflationary policy, reflected in freeing the central bank from the grip of political power, to combat inflation. To this end, we examine samples of developed countries (20 countries) and developing countries (37 countries) observed over the two study periods 1997-2006 and 2007-2016. We found that high-inflation countries and atypical countries biased our results, for both inflation rates and variability. This finding remains valid even after the introduction of a set of political and economic variables likely to affect inflation.

Losing autonomy: the Norwegian central bank during the Second World War

AbstractIn the mid‐twentieth century a number of central banks around the western world lost their operational autonomy and were placed under government control. The origin of these policy changes can be traced to the intellectual and political developments of the interwar era in addition to the introduction of the Bretton Woods monetary system. The Norwegian central bank offers a particularly stark example of this phenomenon: experiencing a rapid decline from its high level of autonomy in the interwar years, to a clear subordination to the government after 1945. Through an analysis of the correspondence between the main policy makers in the exiled Norwegian government and central bank management, this article contributes to the understanding of central bank autonomy by tracing the decisive factors that led to the Norwegian central bank's loss of agency.

Why does the peso-dollar exchange rate show a depreciation trend? The role of productivity differentials

Over the last three decades, Mexico's macroeconomic policy has been driven by a sound orthodox strategy: an open economy via many trade agreements signed since the mid-1980s, a nominal exchange rate under a flexible regime since 1994, central bank autonomy, and responsible fiscal policy, among other benchmarks. Nevertheless, the exchange rate has continued on a path of depreciation against the US dollar. In this paper, we show that although an equilibrium relationship exists between the exchange rate and prices in Mexico and the US (its main commercial partner), there are other forces affecting the former. The main factor in this relentless long-term depreciation is the loss of productivity in Mexico relative to the US. In addition, we show that the extraordinary liquidity supplied by the US during the 2008 crisis caused the Mexican peso to appreciate against the dollar.

The Rise and Decline of the Bank of Italy's Autonomy between 1893 and 1936. A historical interpretion

The aim of this paper is to analyse the autonomy of central banks from a historical perspective, with reference to the founding and development of the Bank of Italy in the period between its inception (1893) and the passing of the Italian Banking Law of 1936. The issue of the autonomy of central banks from governments and budgetary policies has been investigated by several scholars, for whom the degree of autonomy is linked exclusively to factors connected with those wielding power or influence at the time, and factors related to the contingent historical and economic situation. Few studies so far have investigated the causes of the evolution of the degree of autonomy of the central banks, considering this evolution as strictly linked with the process of central state autonomy. The authors aim to investigate the evolution of the Bank of Italy's level of autonomy in light of Michael Mann's thinking.

Testing Fiscal Dominance Hypothesis in a Structural VAR Specification for Pakistan

Abstract This research aims to test the fiscal dominance hypothesis for Pakistan through a bivariate structural vector auto regression (SVAR) specification, covering time period 1977 – 2016. This study employs real primary deficit (non interest government expenditures minus total revenues) and real primary liabilities (sum of monetary base and domestic public debt) as indicators of fiscal measures and monetary policy respectively. A structural VAR is retrieved both for entire sample period and four sub periods (1977 – 1986, 1987 – 1997, 1998 – 2008, and 2009 – 2016). This study identifies the presence of fiscal dominance for the entire sample period and the sub period from 1987 – 2008. The estimates reveal an interesting phenomenon that fiscal dominance is significant in the elected regimes and weaker in the presence of military regimes in Pakistan. From a policy perspective, this research suggests increased autonomy of central bank to achieve long term price stability and reduced administration costs to ensure efficient democratic regime in Pakistan.

Credit controls as an escape from the trilemma. The Bretton Woods experience†

The Mundell “trilemma” is widely used to discuss capital controls and monetary policy autonomy under Bretton Woods. Without denying its usefulness, this paper highlights two facts at odds with assumptions underlying the “trilemma” argument. First, conflicts between internal and external objectives were uncommon. Second, the use of quantitative credit controls allowed central banks to disconnect their interest rate from their monetary policy stance. This was considered by contemporaries as a way to escape international constraints. Capital controls were imposed to complement credit controls. Interest-rate spreads were neither a good measure of capital controls nor of central bank autonomy.

The rule of law, central bank independence and price stability

AbstractThis work empirically investigates the effect of the interaction between the rule of law and legal central bank independence (CBI) on price stability (the level of inflation and inflation volatility), employing a panel dataset that covers up to 124 countries over the period from 1970 to 2013. A new, largely complete legal CBI dataset, covering 182 countries was used for the work. The results indicate that the effect of legal CBI on price stability depends on the strength of the rule of law. Moreover, the results reveal that legal CBI has no significant effect on price stability when the rule of law is weak. The findings also show that 67% of advanced countries possess a rule of law that is strong enough to maintain price stability by increasing central bank autonomy, while only 4.5% of developing countries possess it.