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Legal and Actual Central Bank Independence: A Case Study of Bank Indonesia

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  • Haan, Jakob de
  • Kadek Dian Sutrisna Artha, I.

    (Groningen University)

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    Abstract

    Indicators of central bank independence (CBI) based on the interpretation central bank laws in place may not capture the actual independence of the central bank. This paper develops an indicator of actual independence of the Bank Indonesia (BI), the central bank of Indonesia, for the period 1953-2008 and compares it with a new legal CBI indicator based on Cukierman (1992). The indicator of actual independence captures institutional and economic factors that affect CBI. We find that before 1999, legal and actual independence of BI diverged substantially. After a new central bank law was enacted, the legal independence of BI increased and converged to actual independence.

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    File URL: http://irs.ub.rug.nl/ppn/326810145
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    Bibliographic Info

    Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 10004.

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    Date of creation: 2010
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    Handle: RePEc:dgr:rugsom:10004

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    1. Luis Ignacio Jácome & Francisco F. Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence From Latin America and the Caribbean," IMF Working Papers 05/75, International Monetary Fund.
    2. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, December.
    3. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
    4. Di Noia, Carmine & Di Giorgio, Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks Be Given to Different Agencies?," International Finance, Wiley Blackwell, vol. 2(3), pages 361-78, November.
    5. Bernard Laurens & Marco Arnone & Jean-François Segalotto, 2006. "The Measurement of Central Bank Autonomy," IMF Working Papers 06/227, International Monetary Fund.
    6. Reza Siregar & Willam James, 2004. "Designing an Integrated Financial Supervision Agency: Selected Lessons and Challenges for Indonesia," Centre for International Economic Studies Working Papers 2004-05, University of Adelaide, Centre for International Economic Studies.
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