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Central bank independence and financial instability

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Author Info

  • Klomp, Jeroen
  • de Haan, Jakob

Abstract

It has been argued that central bank independence (CBI) may not only be beneficial for reaching the objective of price stability, but also for maintaining financial stability. Greater independence from external pressure implies that central banks are less politically constrained in acting to prevent financial distress, while it also will allow them to act earlier and more decisively when a crisis erupts. We estimate the relation between CBI and a newly constructed measure of financial instability using a dynamic panel model for the period 1985-2005 with a large set of control variables. We find a significant and robust negative relation between CBI and financial instability, which is mostly due to political independence.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 5 (2009)
Issue (Month): 4 (December)
Pages: 321-338

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Handle: RePEc:eee:finsta:v:5:y:2009:i:4:p:321-338

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Web page: http://www.elsevier.com/locate/jfstabil

Related research

Keywords: Financial instability Central bank independence Dynamic panel models;

References

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Citations

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Cited by:
  1. Uluc Aysun & Ryan Brady & Adam Honig, 2011. "Financial Frictions and the Credit Channel of Monetary Transmission," Working Papers 2011-03, University of Central Florida, Department of Economics.
  2. Gaganis, Chrysovalantis & Pasiouras, Fotios, 2013. "Financial supervision regimes and bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5463-5475.
  3. Simon STURN, 2013. "Are corporatist labour markets different? Labour market regimes and unemployment in OECD countries," International Labour Review, International Labour Organization, vol. 152(2), pages 237-254, 06.
  4. Allen, Franklin & Carletti, Elena, 2013. "New theories to underpin financial reform," Journal of Financial Stability, Elsevier, vol. 9(2), pages 242-249.
  5. Ansgar Belke & Niklas Potrafke, 2011. "Does Government Ideology Matter in Monetary Policy?: A Panel Data Analysis for OECD Countries," Discussion Papers of DIW Berlin 1180, DIW Berlin, German Institute for Economic Research.
  6. Niklas Potrafke, 2012. "Zum Einfluss von Regierungsideologie und Zentralbankunabhängigkeit auf die Geldpolitik," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 65(11), pages 25-26, 06.
  7. Poomjai Nacaskul & Kritchaya Janjaroen & Suparit Suwanik, 2012. "Economic Rationales for Central Banking: Historical Evolution, Policy Space, Institutional Integrity, and Paradigm Challenges," Working Papers 2012-04, Economic Research Department, Bank of Thailand.
  8. Berger, Wolfram & Kißmer, Friedrich, 2013. "Central bank independence and financial stability: A tale of perfect harmony?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 109-118.
  9. Cukierman, Alex, 2011. "Reflections on the crisis and on its lessons for regulatory reform and for central bank policies," Journal of Financial Stability, Elsevier, vol. 7(1), pages 26-37, January.
  10. John V. Duca, 2011. "Did the commercial paper funding facility prevent a Great Depression-style money market meltdown?," Working Papers 1101, Federal Reserve Bank of Dallas.
  11. Benjamin M. Tabak & Marcela T. Laiz & Daniel O. Cajueiro, 2010. "Financial Stability and Monetary Policy - The case of Brazil," Working Papers Series 217, Central Bank of Brazil, Research Department.
  12. Papadamou, Stephanos & Siriopoulos, Costas, 2014. "Interest rate risk and the creation of the Monetary Policy Committee: Evidence from banks’ and life insurance companies’ stocks in the UK," Journal of Economics and Business, Elsevier, vol. 71(C), pages 45-67.
  13. Donato Masciandaro & Marc Quintyn, 2013. "The Evolution of Financial Supervision: the Continuing Search for the Holy Grail," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
  14. Batuo Enowbi, Michael & Kupukile, Mlambo, 2012. "Financial instability, financial openness and economic growth in african countries," MPRA Paper 43340, University Library of Munich, Germany.
  15. Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "The influence of political factors on commercial banks in Central European countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 759-777.
  16. Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.

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