Systemic Crisis Management and Central Bank Independence. An Empirical Analysis

The current financial crisis, through its global dimension, resulted in an intensification of efforts of specialists to find the best policies for crisis management, on the one hand, and to improve the regulatory and supervision framework, on the other hand, both essential conditions for restoring the confidence in the financial system. The goal of the present study is to build a bridge among these recent studies and other approaches, older or newer, on the role of central bank in ensuring financial stability. More concrete, the goal of our scientific approach is to determine, based on empirical analysis, if there is a relationship of dependency between the costs of systemic crises and central bank independence, an issue, otherwise, little explored in literature. In other words, we will try to answer the question: Do central banks with higher degree of independence manage systemic crises more effectively than with lower level of independence? At first glance, the answer would be that central banks with higher degree of independence are able to manage more efficiently systemic crises. The results of the empirical analysis based on a sample of 40 systemic crises, however, led us to another conclusion, namely those central banks with higher degree of independence showed a poor performance in reducing the costs and duration of the crisis, but managed to maintain lower inflation rates during these periods.