1. bookVolume 8 (2019): Issue 1 (January 2019)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
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3 times per year
Languages
English
access type Open Access

A New Insight into the Measurement of Central Bank Independence

Published Online: 03 Jan 2019
Volume & Issue: Volume 8 (2019) - Issue 1 (January 2019)
Page range: 67 - 96
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

The present paper attempts to expand the existing literature on Central Bank Independence (CBI) by proposing new measures for CBI. It designs two indices: one tackling the de jure CBI and the other assessing the de facto level of CBI. The two measures outweigh traditional measures in various aspects; first, the two indices are more comprehensive in terms of possible institutional arrangements. The de jure index incorporates several aspects related to CBI that were not previously grouped together in a unified index i.e. financial independence, limitations related to indirect credit to government, accountability and transparency. The de facto index comprises the main existing indicators for measuring actual CBI (i.e. turnover ratio, political vulnerability indicator and monetary policy reaction function) in addition to new variables, as the lender of last resort function, independence of central bank board, and financial independence that were not included in almost all previous studies. Second, the two indices allow a higher level of precision as they comprise aspects that can be objectively codified with a minimum level of subjectivity. Third, the two indices cover the same attributes of CBI to facilitate measuring the deviation between de jure and de facto level of independence for any central bank. The current paper provides a comprehensive definition and analysis of both indices to enable their replication in future studies.

Keywords

JEL Classification

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