Political institutions and central bank independence revisited

Abstract

We build on earlier studies regarding Central Bank independence (CBI) by relating it to political, institutional and economic variables. The data suggest that CBI is positively related to the presence of federalism, the features of the electoral system and parties, the correlation between the shocks to the level of economic activity in the countries included in the sample and, for a sub-sample of economies, the convergence criteria to join the European Monetary Union (EMU)

Central Bank Independence in the World: A New Data Set

“…However, the few studies on the determinants of CBI have limitations. Most of these works show the determinants of CBI in developed countries (Bernhard 2002, Pistoresi, Salsano, and Ferrari 2011. Although there is agreement regarding the possibility that the determinants of CBI are different in developed and developing countries, data seldom allow us to test competing explanations on both sets of countries.…”

Political Pressure on Central Banks

“…For example, democracy, electoral competition, and checks and balances are associated with greater openness and transparency, so they make it easier for interest groups or political opposition to observe "informal transgressions" of CBI (Broz 2002, p. 861) and make it less feasible for the executive to interfere with the central bank (Lohmann 1998, Moser 1999. Federalism increases the potential benefits of CBI, since there is greater potential for conflict over monetary policy, as politicians respond to regional economic differences and run for office at different times (Bernhard 2002, Lohmann 1998, Farvaque 2002, Pistoresi, Salsano, and Ferrari 2011. Notes: The polity score, from Polity IV Project, ranges from −10 (most autocratic) to 10 (most democratic) and is available for 106 countries in my sample through 2017.…”

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

“…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). Moreover, we refer to the institutional variables used by Farvaque (2002), and Pistoresi et al (2011). Our final sample includes data for 31 OECD and 49 non-OECD economies (see Note 1 for a detailed list of countries) and covers the years from 1998 to 2010.…”

“…In fact, they explicitly require countries to commit to particular set of policies and among these, a more independent central bank is often recommended. The participation in a monetary union also encourages countries to change the institutional design of monetary policy in view of greater price stability (Pistoresi et al, 2011, Dincer & Eichengreen, 2014, Romelli, 2017.…”