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Towards measurement of political pressure on central banks in the emerging market economies: the case of the central bank of Egypt

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  • Ibrahim L. Awad

    () (Institute of Economic Studies of the Charles University in Prague)

Abstract

This paper assesses whether the legal independence granted to the Central Bank of Egypt (CBE) under the latest legislation is factual. I followed Fry’s methodology, which assumes that the level of independence of the central bank is determined by fiscal attributes. In an attempt to develop Fry’s method, I used a simple criterion to assess the central bank’s independence, namely, that the central bank is actually independent if it can fulfill its money supply target. Applying this criterion to the CBE and some other CBs in the developed countries and emerging market economies, we find that: (i) the legal independence granted to the CBE under the latest legislation is not factual; although the final objective of monetary policy is to achieve price stability, the CBE failed to fulfill its money supply target and achieve price stability, because it was responsive to political pressure and did not react to fulfill its money supply target; (ii) such political pressure on the CBE is due to fiscal attributes, as measured by domestic credit to the government; (iii) CBs whose independence is factual, according to our criterion, showed a negative relationship between the legal indices, as measured by the GMT index, and the fiscal attributes measured by DCGY. However, the relationship was anomalous when measured by the rate of inflation

Suggested Citation

  • 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.
  • Handle: RePEc:aic:revebs:y:2008:v:1:p:63-89
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    References listed on IDEAS

    as
    1. 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.
    2. S. Eijffinger & M. Van Keulen, 1995. "Central bank independence in another eleven countries," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(192), pages 39-81.
    3. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
    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. Maier, Philipp & Sturm, Jan-Egbert & de Haan, Jakob, 2002. "Political pressure on the Bundesbank: an empirical investigation using the Havrilesky approach," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 103-123, March.
    6. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    7. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    monetary policy; central bank independence; fiscal dominance; political pressure;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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