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A New Insight into the Measurement of Central Bank Independence

Author

Listed:
  • M. Fouad Jasmine

    (Faculty of Economics and Political Science, Cairo University, Cairo, Egypt)

  • E. Fayed Mona

    (Faculty of Economics and Political Science, Cairo University, Cairo, Egypt)

  • A. Emam Heba Talla

    (Faculty of Economics and Political Science, Cairo University, Cairo, Egypt)

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.

Suggested Citation

  • M. Fouad Jasmine & E. Fayed Mona & A. Emam Heba Talla, 2019. "A New Insight into the Measurement of Central Bank Independence," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(1), pages 67-96.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:1:p:67-96
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    Citations

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    Cited by:

    1. Carolin Schellhorn, 2020. "Financial System Stability, the Timing of Climate Change Action and the Federal Reserve," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 45-59.
    2. Atsushi Tanaka, 2020. "Monetary Base Controllability after an Exit from Quantitative Easing," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 123-134.
    3. Aijaz Ahmad Bhat & Javaid Iqbal Khan & Sajad Ahmad Bhat & Javed Ahmad Bhat, 2023. "Central Bank Independence and Inflation in India: The Role of Financial Development," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 47(4), pages 392-407, October.
    4. Ahmad Bhat Aijaz & Iqbal Khan Javaid & Ahmad Bhat Sajad & Ahmad Parray Waseem, 2023. "Central Bank Independence and its Impact on Fiscal Deficit: Evidence from India," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(2), pages 71-94, June.

    More about this item

    Keywords

    Central Bank Independence; Independence Indices; Monetary Policy; Political Economy.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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