On the determinants of Central Bank independence in open economies

Abstract

We test some positive implications of the commitment hypothesis for the design of monetary institutions in open economies, by studying the determinants of Central Bank independence on a sample of 55 countries, for the period 1980-1989. We document fairly consistent empirical evidence in support of the hypothesis that strategic commitment is indeed important to understand cross-country variation in the level of Central Bank degree of dependence. We also address the related question why only highly industrialized countries have relied on such a solution to the inflationary bias of monetary policy whereas other countries have not. Data suggest that the answer is related to the presence and the size of world-wide common features in the business cycle at country level. Copyright © 2007 John Wiley & Sons, Ltd.

Maximum Likelihood Estimation for the Generalized Pareto Distribution and Goodness-of-Fit Test with Censored Data

“…Moreover, the inflationary bias has specific features in open economies due to the interdependence in the stabilization monetary policy. In this context, international business cycle synchronization, the degree of openness, and exchange regime are also important (D'Amato et al, 2009). The political economy approaches suggested this institutional innovation should be understood, not only in terms of economic efficiency, but also in terms of political convenience, adding other potential determinants of CBI.…”

Threshold Effect of Financial Integration on Linkages Between Monetary Independence and Foreign Exchange Reserves

“…Higher inflation prompts greater political pressure on a central bank to intervene in the price level via monetary policy and erodes and the freedom of a central banker to formulate monetary policy (Cukierman, 1992). Nonetheless, excessive inflation in the past can cause a central bank to become more averse to high inflation, causing that central bank to implement anti-inflationary policies to help protect the central bank's independence (Hayo, 1998) while facilitating public acceptance towards inflation (D'Amato, Pistoresi, & Salsano, 2009). This lead to less pressure on the central bank to reduce inflation and increase its independence.…”

The influence of financial market development on de jure central bank independence in the Asia–Pacific

“…One of CBI's most frequently discussed contributions is its ability to lower inflation (e.g. Cukierman et al, 1992;Alesina and Summers, 1993;Loungani and Sheets, 1997;D'Amato et al, 2009). De Haan (2021) reported that the negative association is due to the positive role of CBI in mitigating the time inconsistency problem.…”

“…Cukierman et al. , 1992; Alesina and Summers, 1993; Loungani and Sheets, 1997; D'Amato et al. , 2009).…”