Central bank independence and its effect on money market stability

MSc. Anera Alishani

Abstract


Since 1990s many countries have moved toward greater central bank independence (CBI) by either amending their Central Bank’s laws or writing them de novo. Also countries of Western Balkans and many other transition countries have moved toward greater CBI. There are many potential benefits associated with greater CBI, and one of them is stable growth of money and liquidity. For a given level of money market development the hypothesis is that a more independent CB is likely to promote more stable growth of money supply (Dželetović et al., 2008). As a result the main research task of this work is to estimate the effects of CBI on money market growth for five Western Balkans countries and five other European transition countries. Because the empirical studies were very limited for the relationship between CBI and money market growth, there were no clear conclusions. In addition, there were different measuring methodologies that attempt to quantify the extent of legal and actual CBI. Related to the main research task, this dissertation has examined the effects of CBI on money market stability (proxied by bank deposit growth) for a sample of 10 countries for a period from 1999-2009 by using fixed effect model. Through this methodology different regressions have been estimated, but the results were not robust and there are no clear finding on the relationship between CBI and money market growth.

Keywords


Central Banks; Central Bank Independence; Money Market; Growth; Stability;

References


Akhand, H.A., (1998), “Central Bank Independence and Growth; A sensitivity Analysis,” Canadian Journal of Economics, Vol.31, No.2, pp. 303-17.

Alesina, A., and Summers, L., (1993), “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money, Credit and Banking, Vol. 25, pp. 151-62.

Alpanda, S., and Honing, A., (2009), “Political monetary cycles and a de facto ranking of central bank independence,” Amherst College, Amherst, MA 01002

Atanasova, G., Kacarska, S., Koneska, C., Pulejkos, A., and Risteska, M., (2008), “Integration Perspectives and synergic effects of European Transformation”, Centre for EU enlarged studied and CEU.

Bade, R. and Parkin, M., (1988), “Central Bank Laws and Monetary Policies,” unpublished, London (Ontario, Canada), University of Western Ontario.

Baltagi, B., (2008), “Econometric Analysis of Panel Data,” John Wily & Sons, Chichester.

Barro, R. and Gordon, D., (1983), “Rules, Discretion and Reputation in a Model of Monetary Policy,” Journal of Monetary Economy, Vol. 12, pp.101-121.

Bartlett, W., (2008), “Europe’s Troubled Region” Routledge, London and New York.

Belke, A., and Zenkić, A., (2007) “Exchange Rate Regimes and the Transition Process in the Western Balkans” University of Duisburg-Essen, University of Stuttgart-Hohenheim / KPMG Stuttgart Nr. 288/200.

Bishev, G., (1997), “Reliability of the exchange rate as a monetary target in a suboptimal currency area- Macedonian case,” Vienna.

Bogeov, J., Petrevski, G., and Sergi, B., (2011), “Investigating the link between central bank independence and inflation in Central and Eastern Europe – evidence from panel data models,” forthcoming.

Central Bank of Kosova, (2009), “Financial Stability Report 2009,” Central Bank of Kosova, Prishtina.

Cohen, B. C. and Kaufman, G., (1965), “Factors determining bank deposit growth by state: an empirical analysis,” Journal of Finance, vol. 20, pp. 59-70.

Crowe, C. and Meade E., (2007), “The Evolution of Central Bank Governance around the World,” Journal of Economic Perspectives, Vol. 21, No.4, pp. 69-90.

Cukierman, A., (1992), “Central Bank Strategy, Credibility, and Independence: Theory and Evidence,” Cambridge, Mass., MIT Press.

Cukierman, A., Webb, S., and Neyapti, B., (1992), “Measuring the Independence of Central Banks and its Effect on Policy Outcomes”, World Bank Economic Review, Vol. 6, No. 3, pp. 353-398.

De Haan, J. and Kooi, W., (2000), “Does central bank independence really matter? New evidence for developing countries using a new indicator,” Journal of Banking and Finance, Vol. 24, 643-664.

De Haan, J., and Siermann, C., (1994), “Central Bank Independence, Inflation and Political Instability,” Department of Economics, University of Groningen, Journal of Policy Reform.

De Haan, J., and Sturm, J.E., (1992), “The Case for CB Autonomy,” Banca Nazionale del Lavoro Quarterly Review, Vol. 182, pp.305-27.

De Long, J. and Summers, L., (1992), “Macroeconomic Policy and Long-Run growth,” Federal reserve Bank of Kansas City Economic Review, Fourth Quarter, pp. 5-29.

Dželetović, M., Slobodan, R., and Andrejević, A. (2008), “Interdependence of Development of Financial Markets and Efficiency of Monetary-Credit Instrumentarium,” Paper presented at the conference: “Financial System Integration of Balkan Countries in the European Financial System”, Belgrade, 2008.

Eijffinger, S. and De Haan, J., (1996a), “The political economy of central bank independence,” Special Papers in International Economics, No 19, Princeton.

Eijffinger, S., and Schaling, E., (1993), “Central bank independence in twelve industrial countries,” Banca Nazionale del Lavoro Quarterly Review, Vol.184, 49–89.

Eijffinger, S., Van Rooij, M., and Schaling E., (1996), “Central Bank Independence: A Paneldata Approach,” Public Choice, Vol. 89, pp.163-82.

Grilli, V. Masciandaro, D. and Tabellini, G., (1991), "Political and Monetary Institutions and Public Finance Policies in the Industrial Countries." Economic Policy 13 (October 1991), 341-92.

Haron, S., and Azmi, W., (2006), “Deposit Determinants of Commercial Banks in Malaysia”, Working Paper Series 009, Finance India, Vol. XX, No. 2.

Kydland F., and Prescott E., (1977), “Rules Rather than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy, Vol. 85, No. 3 pp. 473-92.

Loungani, K., and Sheets, N., (1995), “Central Bank Independence, Inflation, and Growth in Transition Economies,” Journal of Money, Credit, and Banking, 29, 381-399.

Mu, Y., and Horgan, M., (2006), “Government Securities, Money market and Cash Management in Serbia,” Financial Sector, World Bank.

Müller-Jentsch, D. (2007), “Financial Sector Restructuring and Regional Integration in the Western Balkans,” Office for South East Europe, European Commission.

Rogoff, K., (1985), “The Optimal Degree of Commitment to a Monetary Target”, Quarterly Journal of Economics, Vol. 100, No. 4, pp.1169-1189.

Sargent, Th. and Wallance, N., (1981), “Some Unpleasant Monetarist Arithmetic,” Federal reserve bank of Minneapolis Quarterly Review, 5, pp.1-17.

Sturm, E. and De Haan, J., (2001), “Inflation in developing countries: Does central bank independence matter? New evidence based on a new dataset,” Ifo Studien, 47 (4), 389-403.

Turner, Ph., (2006), “The banking system in emerging economies: how much progress has been made?” Bank for International Settlements, No 28.

Vukajlović-Grba, D., (2007), “The Money Market in Montenegro - Conditions, Development and Outlook” Panaeconomicus, 3, str. 325-346.

Walsh, C., (1995), “Optimal Contracts for Central Bankers”, American Economic Review, Vol. 85, No. 1, pp. 150-167.

Wooldridge, J., (2006), “Introductory Econometrics,” Thomson South-Western, 3rd Edition,

Web-sites used:

Bank of Albania, .

Bank of Bosnia and Herzegovina, .

Bulgarian National Bank, < http://www.bnb.bg/?toLang=_EN>.

Central Bank of Montenegro, < http://www.cb-mn.org/eng/>.

Central Bank of Kosovo, < http://www.bqk-kos.org/>.

Croatian National Bank, < http://www.hnb.hr/eindex.htm>.

Czech National Bank, < http://www.cnb.cz/en/>.

European Bank for Reconstruction and Development, .

European Commission, < http://ec.europa.eu/index_en.htm>

International Monetary Fund, < http://fas.imf.org/>

National Bank of Hungary, < www.mnb.hu/>.

National Bank of Republic of Macedonia, < http://www.nbrm.mk/defaulten.asp>.

National Bank of Serbia, < http://www.nbs.rs/internet/english/ >.

National Bank of Slovakia, < http://www.nbs.sk/en/home>.

National Bank of Moldova, < http://www.bnm.md/en/home>.

World Bank, < http://www.worldbank.org/>


Full Text: PDF

DOI: 10.21113/iir.v2i1.166

Article Metrics

Metrics Loading ...

Metrics powered by PLOS ALM

Refbacks

  • There are currently no refbacks.




Copyright (c) 2016 MSc. Anera Alishani

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
x
Message