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Central Bank Independence and Central Bank Conservatism: Theory with an Application to Iran

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  • Derakhshani Darabi , Kaveh

    (Faculty of Humanities, Arak University)

  • Jafari Samimi , Ahmad

    (Faculty of Economics and Administrative Science, University of Mazandaran)

Abstract

New monetary literatures widely concentrates on the importance of institutional arrangements in the effectiveness of monetary policy. The debate regarding the optimal institutional design of central banks, independence and conservatism are usually considered to be the most important ingredients for a stable and successful monetary policy. Therefore, the purpose of this study is to deal with the institutional arrangements of monetary policy especially Central Bank Independence (CBI) and Central Bank Conservatism (CBC). Indices used by Grilli et al. (1991), Cukierman (1992), Mathew (2006) and Dumiter (2009) were applied to calculate the CBI during 1961-2016, and CBC in Iran using a dynamic optimal solution under commitment in Barro-Gordon and New-Keynesian forward looking Philips Curve models. Results show that the relative concern on inflation is smaller than that on output gap for the central bank of Iran. Also results regarding the calculations of CBI based on different indices reveals the fact of insufficient independence of central bank in Iran.

Suggested Citation

  • Derakhshani Darabi , Kaveh & Jafari Samimi , Ahmad, 2016. "Central Bank Independence and Central Bank Conservatism: Theory with an Application to Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(1), pages 15-30, January.
    • Handle: RePEc:mbr:jmonec:v:11:y:2016:i:1:p:15-30
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    References listed on IDEAS

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    2. 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).
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    4. 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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    More about this item

    Keywords

    Central Bank conservatism; Inflation averse; Loss function; Central Bank independence;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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