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Assessing Central Bank Independence in Developing Countries: Do Actions Speak Louder Than Words?

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  • Fry, Maxwell J

Abstract

The author's fiscal dominance hypothesis of central bank independence posits that the size of the government's deficit and the methods by which it is financed determine central bank independence in developing countries. He measures central bank independence by the extent to which a central bank neutralizes the effects of increased credit demands by the government on the money supply by reducing credit to the private sector. The author's estimates show that larger deficits and greater government reliance on the domestic banking system are associated with less central bank neutralization of increased government borrowing from the banking system. Copyright 1998 by Royal Economic Society.

Suggested Citation

  • Fry, Maxwell J, 1998. "Assessing Central Bank Independence in Developing Countries: Do Actions Speak Louder Than Words?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 512-529, July.
    • Handle: RePEc:oup:oxecpp:v:50:y:1998:i:3:p:512-29
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    Cited by:

    1. Jörg Bibow, 2004. "Reflections on the current fashion for central bank independence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(4), pages 549-576, July.
    2. Douglas Gale & Xavier Vives, 2002. "Dollarization, Bailouts, and the Stability of the Banking System," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 467-502.
    3. Ibrahim L. Awad, 2008. "Towards measurement of political pressure on central banks: the case of the central bank of egypt," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(3), pages 254-275.
    4. Mendonça, Helder Ferreira de, 2005. "Central bank independence and its relationship to inflation," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    5. Marco Arnone & Bernard J Laurens & Jean-François Segalotto & Martin Sommer, 2009. "Central Bank Autonomy: Lessons from Global Trends," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 263-296, June.
    6. Hielscher, Kai & Markwardt, Gunther, 2012. "The role of political institutions for the effectiveness of central bank independence," European Journal of Political Economy, Elsevier, vol. 28(3), pages 286-301.
    7. Mark Mietzner & Dirk Schiereck, 2011. "Staatsfonds als Ankerinvestoren: Eine Note zum Einstieg von Aabar bei Daimler," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 92-100, February.
    8. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    9. Anita Angelovska - Bezhoska, 2018. "Central bank independence-the case of the National Bank of Republic of Macedonia," Working Papers 2018-01, National Bank of the Republic of North Macedonia.
    10. Ms. JoAnne Morris & Mr. Tonny Lybek, 2004. "Central Bank Governance: A Survey of Boards and Management," IMF Working Papers 2004/226, International Monetary Fund.
    11. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    12. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 99-118.
    13. Ozgur ASLAN & H. Levent KORAP, 2007. "Monetary Transmission Mechanism In An Open Economy Framework: The Case Of Turkey," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 5(1), pages 41-66, May.
    14. Gabriel Sterne, 2002. "Inflation Targets in a Global Context," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 2, pages 023-078, Central Bank of Chile.
    15. Ibrahim L. Awad, 2008. "Towards measurement of political pressure on central banks in the emerging market economies: the case of the central bank of Egypt," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 1, pages 63-89, December.
    16. Cristina Bodea, 2013. "Independent central banks, regime type, and fiscal performance: the case of post-communist countries," Public Choice, Springer, vol. 155(1), pages 81-107, April.
    17. Mr. Peter Stella & Mr. Ulrich H Klueh, 2008. "Central Bank Financial Strength and Policy Performance: An Econometric Evaluation," IMF Working Papers 2008/176, International Monetary Fund.
    18. Jean-François Segalotto & Mr. Marco Arnone & Mr. Bernard J Laurens, 2006. "Measures of Central Bank Autonomy: Empirical Evidence for OECD, Developing, and Emerging Market Economies," IMF Working Papers 2006/228, International Monetary Fund.
    19. Tadadjeu Wemba, Dessy-Karl & Essiane, Patrick-Nelson Daniel, 2018. "Autonomie des Banques Centrales et Finances Publiques en Afrique subsaharienne [Autonomy of Central Banks and Public Finances in Sub-saharan Africa]," MPRA Paper 100828, University Library of Munich, Germany.
    20. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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