The Politics of Central Bank Independence

Fernández-Albertos, José

doi:10.1146/annurev-polisci-071112-221121

Cited by 107 publications

(51 citation statements)

References 108 publications

(82 reference statements)

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“…In this paper we examine the determinants of CBI using a new index recently provided by Dincer and Eichengreen (2014) The 47 variables used to investigate the determinants of CBI have been selected in line with recent literature on this topic (for a survey, see Fernández-Albertos, 2015). In particular, we consider the economic and political variables also used by Dincer and Eichengreen (2014) with some additional variables suggested by D' Amato et al (2009).…”

Section: Datamentioning

confidence: 99%

Central Bank Independence, Financial Instability and Politics: New Evidence for OECD and Non-OECD Countries

Pistoresi

Cavicchioli

Brevini³

2017

IJEF

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This paper analyses the determinants of a new index of central bank independence, recently provided by Dincer and Eichengreen (2014), using a large database of economic, political and institutional variables. Our sample includes data for 31 OECD and 49 non-OECD economies and covers the period 1998-2010. To this aim, we implement factorial and regression analysis to synthesize information and overcome limitations such as omitted variables, multicollinearity and overfitting. The results confirm the role of the IMF loans program to guide all the economies in their choice of more independent central banks. Financial instability, recession and low inflation work in the opposite direction with governments relying extensively on central bank money to finance public expenditure and central banks' political and operational autonomy is inevitably undermined. Finally, only for non-OECD economies, the degree of central bank independence responds to various measures of strength of political institutions and party political instability.

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Section: Datamentioning

confidence: 99%

Central Bank Independence, Financial Instability and Politics: New Evidence for OECD and Non-OECD Countries

Pistoresi

Cavicchioli

Brevini³

2017

IJEF

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“…However, even the most independent central bank does not operate in a political vacuum (Fernández-Albertos, 2015). For instance, in a survey among 24 central banks, MoserBoehm (2006) shows that central bankers and government officials frequently meet and also have informal ways for discussing (the coordination of) monetary and fiscal policy.…”

Section: Introductionmentioning

confidence: 99%

“…inflation-averse) foreign central bank by fixing the exchange rate (see Bernhard et al, 2002;Bodea, 2010 andFernández-Albertos, 2015 for details). Although these two institutional choices might be alternative ways to achieve monetary credibility in the short run, once a fixed exchange rate regime has been adopted, a central bank might be instrumental in making the currency commitments politically sustainable over the long run (Fernández-Albertos, 2015). Hoeberichts (1998, 2008) examine this trade-off between CBI and CBC in more detail.…”

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confidence: 99%

“…For example, Franzese (1999) shows that the effect of central bank independence on inflation is conditional on several political and institutional factors, such as government partisanship and labor market organization. For a discussion of this line of research we refer to Berger et al (2001) and Fernández-Albertos (2015).…”

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confidence: 99%

“…First, financial stability and unconventional monetary policies of central banks have stronger distributional implications (Fernández-Albertos, 2015). Of course, decisions by central banks will always affect relative prices and therefore their decisions will have redistributive effects.…”

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confidence: 99%

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The Politics of Central Bank Independence

Haan

Eijffinger

2016

SSRN Journal

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This paper reviews recent research on the political economy of monetary policy-making, both by economists and political scientists. The traditional argument for central bank independence (CBI) is based on the desire to counter inflationary biases. However, studies in political science on the determinants of central bank independence suggest that governments may choose to delegate monetary policy in order to detach it from political debates and power struggles. This argument would be especially valid in countries with coalition governments, federal structures and strongly polarized political systems. The recent financial crisis has changed the role of central banks as evidenced by the large set of new unconventional monetary and macro-prudential policy measures. But financial stability and unconventional monetary policies have much stronger distributional consequences than conventional monetary policies and this has potential implications for the central bank's independence. It may also have changed the regime from monetary dominance to fiscal dominance. However, our results do not suggest that CBI has been reduced since the Great Financial Crisis. This holds both for legal measures of CBI and the turnover rate of central bank governors.

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Minimising the inflationary impact of fiscal deficits in Africa: The role of monetary, financial and political institutions

Agoba¹

2019

Int. J Fin Econ

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This is an examination of the relationship between fiscal deficits and inflation in Africa based on the premise that the characteristics of monetary, financial and political institutions, do impact the nature of this relationship. The study hypothesizes that, the inflationary effect of fiscal deficits is minimised when the central bank is independent (CBI) and the financial market is developed enough to contain inflationary expectations. This impact is much more effective given stronger political institutions. Using a panel data spanning 1970–2012 for 48 African countries, we use a Two Stage System Generalised Methods of Moments estimator, with Windmeijer (2005) corrected SE and collapsed instruments to address the issue of instrument proliferation. We also use various measures of central bank independence, financial development and political institutional quality. Fiscal deficits are inflationary in Africa. The positive effect of fiscal deficits on inflation is weakened when the degrees of Central Bank Independence (CBI) and financial development are higher. Financial development minimises the modulating impact of lower CBI on inflationary fiscal deficits. While stronger political institutions minimise the dampening effect of high central bank turnover on inflationary fiscal deficits, it enhances the positive impact of stronger central bank independence and financial development on minimising inflationary fiscal deficits. The results are robust to varying measures of CBI, financial development, and political institutions. Africa's financial sector should therefore be developed alongside strengthening the independence of central banks and ensuring that the quality of political institutions are enhanced in order to effectively curtail inflationary fiscal deficits.

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The Politics of Central Bank Independence

Cited by 107 publications

References 108 publications

Central Bank Independence, Financial Instability and Politics: New Evidence for OECD and Non-OECD Countries

Central Bank Independence, Financial Instability and Politics: New Evidence for OECD and Non-OECD Countries

The Politics of Central Bank Independence

Minimising the inflationary impact of fiscal deficits in Africa: The role of monetary, financial and political institutions

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