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Discussion on the Inconsistency of Central Bank Independence Measures

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Author Info
Aleksandra Maslowska () (Department of Economics, University of Turku)

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Abstract

In recent years, a number of countries have modified their monetary institutions, focusing, in many cases, on increasing of the independence of national central banks. This attracted attention of academics and policymakers, who have shown continuing interest in various monetary institutions with respect to the formulation of monetary policy. This paper analyzes some of them. Especially, it reviews and criticizes generally accepted indices of central bank independence. The analysis names several imprecisions among measures that cover the subjectivity, criteria and weighting problem. It brings the conclusion that neither of measures, whether it is the widely accepted Cukierman index (1992) or work based on Grilli, Masciandaro and Tabellini (1991), are not free of criticism. Additional problem appears when countries with different levels of development are concerned. Here, the Borda Count method is used among ten transition economies to determine the country with the most independent central bank, based on four different measures. With the wide criticism of indices, this work questions the robustness and representation of empirical studies and their results.

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Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 21.

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Length: 38
Date of creation: Sep 2007
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Handle: RePEc:tkk:dpaper:dp21

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Related research
Keywords: institution; central bank independence;

Find related papers by JEL classification:
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

References listed on IDEAS
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  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  3. Mangano, Gabriel, 1998. "Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 468-92, July.
  4. Bondonio, Daniele, 2002. "Evaluating the Employment Impact of Business Incentive Programs in EU Disadvantaged Areas. A case from Northern Italy," P.O.L.I.S. department's Working Papers 27, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  5. Havrilesky, Thomas & Granato, James, 1993. " Determinants of Inflationary Performance: Corporatist Structures vs. Central Bank Autonomy," Public Choice, Springer, vol. 76(3), pages 249-61, July.
  6. James Forder, 2000. "Traps in the Measurement of Independence and Accountability of Central Banks," Economics Series Working Papers 023, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  7. Wojciech S. Maliszewski, 2000. "Central Bank Independence in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 749-789, November. [Downloadable!] (restricted)
  8. Banaian, King & Luksetich, William A, 2001. "Central Bank Independence, Economic Freedom, and Inflation Rates," Economic Inquiry, Oxford University Press, vol. 39(1), pages 149-61, January.
  9. Banaian, King & Burdekin, Richard C K & Willett, Thomas D, 1998. " Reconsidering the Principal Components of Central Bank Independence: The More the Merrier?," Public Choice, Springer, vol. 97(1-2), pages 1-12, October. [Downloadable!] (restricted)
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  11. Loungani, Prakash & Sheets, Nathan, 1997. "Central Bank Independence, Inflation, and Growth in Transition Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 381-99, August.
    Other versions:
  12. Christopher J. Waller, 1995. "Performance contracts for central bankers," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-14. [Downloadable!]
  13. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  14. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
    Other versions:
  15. Brumm, Harold J, 2000. "Inflation and Central Bank Independence: Conventional Wisdom Redux," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 807-19, November.
  16. Cukierman, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March. [Downloadable!] (restricted)
    Other versions:
  17. Mervyn King, 2004. "The Institutions of Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 1-13, May. [Downloadable!]
  18. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
  19. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 195-225. [Downloadable!]
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  20. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  21. Mervyn King, 2004. "The Institutions of Monetary Policy," NBER Working Papers 10400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Guy Debelle, 1996. "Central Bank Independence: A Free Lunch?," IMF Working Papers 96/1, International Monetary Fund.
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