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Adam Honig - One of the best experts on this subject based on the ideXlab platform.
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political monetary cycles and a de facto ranking of Central Bank Independence
Journal of International Money and Finance, 2010Co-Authors: Sami Alpanda, Adam HonigAbstract:This paper examines the extent to which monetary policy is manipulated for political purposes by testing for the presence of political monetary cycles between 1972 and 2001. This is the first study of its kind to include not only advanced countries but also a large sample of developing nations where these cycles are more likely to exist. We estimate panel regressions of a monetary policy indicator on an election dummy and control variables. We do not find evidence of political monetary cycles in advanced countries but find strong evidence in developing nations. Based on our results, we construct a new de facto ranking of Central Bank Independence derived from the extent to which monetary policy varies with the election cycle. Our ranking of CBI is therefore based on the behavior of Central Banks during election cycles when their Independence is likely to be challenged or their lack of Independence is likely to be revealed. The ranking also avoids well-known problems with existing measures of Central Bank Independence.
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political monetary cycles and a de facto ranking of Central Bank Independence
Social Science Research Network, 2009Co-Authors: Sami Alpanda, Adam HonigAbstract:Political monetary cycles are less likely to occur in countries with independent Central Banks. Independent Central Banks can withstand political pressure to stimulate the economy before elections or finance election-related increases in government spending. Based on this logic and supporting evidence, we construct a de facto ranking of Central Bank Independence derived from the extent to which monetary policy varies with the electoral cycle. The ranking avoids well-known problems with existing measures of Central Bank Independence and provides independent information about average inflation and inflation volatility differences across countries.
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the impact of Central Bank Independence on political monetary cycles in advanced and developing nations
Social Science Research Network, 2009Co-Authors: Sami Alpanda, Adam HonigAbstract:This paper examines the extent to which monetary policy is manipulated for political purposes during elections. We do not detect political monetary cycles in advanced countries or developing nations with independent Central Banks. We do find evidence, however, in developing countries that lack Central Bank Independence. Furthermore, we find some evidence that these cycles are not caused by monetization of election-related fiscal expansions. This suggests that pressure by politicians on the Central Bank to exploit the Phillips curve may be an important factor in generating political monetary cycles.
Masaaki Higashijima - One of the best experts on this subject based on the ideXlab platform.
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Central Bank Independence and fiscal policy can the Central Bank restrain deficit spending
Social Science Research Network, 2017Co-Authors: Christina Bodea, Masaaki HigashijimaAbstract:Independent Central Banks prefer balanced budgets due to the long-run connection between deficits and inflation and can enforce their preference through interest rate increases and denial of credit to the government. We argue that legal Central Bank Independence (CBI) deters fiscal deficits predominantly in countries with rule of law and impartial contract enforcement, a free press and constraints on executive power. More, we suggest that CBI may not affect fiscal deficits in a counter-cyclical fashion, but, rather, depending on the electoral calendar and government partisanship. We test our hypotheses with new yearly data on legal CBI for 78 countries from 1970 to 2007. Results show that CBI restrains deficits only in democracies, during non-election years and under left government tenures.
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Central Bank Independence and fiscal policy can the Central Bank restrain deficit spending
British Journal of Political Science, 2017Co-Authors: Christina Bodea, Masaaki HigashijimaAbstract:Independent Central Banks prefer balanced budgets due to the long-run connection between deficits and inflation, and can enforce their preference through interest rate increases and denial of credit to the government. This article argues that legal Central Bank Independence (CBI) deters fiscal deficits predominantly in countries with rule of law and impartial contract enforcement, a free press and constraints on executive power. It further suggests that CBI may not affect fiscal deficits in a counter-cyclical fashion, but instead depending on the electoral calendar and government partisanship. The article also tests the novel hypotheses using new yearly data on legal CBI for seventy-eight countries from 1970 to 2007. The results show that CBI restrains deficits only in democracies, during non-election years and under left government tenures.
Christina Bodea - One of the best experts on this subject based on the ideXlab platform.
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Central Bank Independence Before and After the Crisis
Comparative Economic Studies, 2018Co-Authors: Jakob De Haan, Christina Bodea, Raymond Hicks, S C W EijffingerAbstract:This paper discusses whether Central Bank Independence (CBI) has changed since the financial crisis. Central Banks’ quasi-fiscal policies during and after the crisis, and macro-prudential and unconventional monetary policies, which are more redistributive than traditional monetary policy, have led to questions about the desirability of CBI. Some even argue that CBI is under threat. However, a survey among Central Bankers and updates of legal proxies for CBI do not provide strong evidence that CBI has diminished since the financial crisis. The only indication for this is the increase in the turnover rate of Central Bank governors in advanced countries.
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Central Bank Independence and fiscal policy can the Central Bank restrain deficit spending
Social Science Research Network, 2017Co-Authors: Christina Bodea, Masaaki HigashijimaAbstract:Independent Central Banks prefer balanced budgets due to the long-run connection between deficits and inflation and can enforce their preference through interest rate increases and denial of credit to the government. We argue that legal Central Bank Independence (CBI) deters fiscal deficits predominantly in countries with rule of law and impartial contract enforcement, a free press and constraints on executive power. More, we suggest that CBI may not affect fiscal deficits in a counter-cyclical fashion, but, rather, depending on the electoral calendar and government partisanship. We test our hypotheses with new yearly data on legal CBI for 78 countries from 1970 to 2007. Results show that CBI restrains deficits only in democracies, during non-election years and under left government tenures.
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Central Bank Independence and fiscal policy can the Central Bank restrain deficit spending
British Journal of Political Science, 2017Co-Authors: Christina Bodea, Masaaki HigashijimaAbstract:Independent Central Banks prefer balanced budgets due to the long-run connection between deficits and inflation, and can enforce their preference through interest rate increases and denial of credit to the government. This article argues that legal Central Bank Independence (CBI) deters fiscal deficits predominantly in countries with rule of law and impartial contract enforcement, a free press and constraints on executive power. It further suggests that CBI may not affect fiscal deficits in a counter-cyclical fashion, but instead depending on the electoral calendar and government partisanship. The article also tests the novel hypotheses using new yearly data on legal CBI for seventy-eight countries from 1970 to 2007. The results show that CBI restrains deficits only in democracies, during non-election years and under left government tenures.
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international finance and Central Bank Independence institutional diffusion and the flow and cost of capital
The Journal of Politics, 2015Co-Authors: Christina Bodea, Raymond HicksAbstract:Research on Central Bank Independence (CBI) focuses overwhelmingly on domestic causes and consequences. We consider CBI in relation to global finance. A first step links decisions to reform Central Bank legislation to a perceived need to attract capital in the form of foreign direct investment or sovereign borrowing. A second step models investors’ actual decisions as a function of CBI. We test our argument on a sample of 78 countries (1974–2007). Logit models investigate the determinants of Central Bank reform. Results show the effect of international capital through a direct-competition channel and through learning in the context of competition. Socialization of countries in networks of intergovernmental organizations is also a determinant of CBI reform. In addition, we show that CBI affects the flow and cost of capital in non-OECD countries, before CBI became globally widespread, and where political institutions allow the Central Bank to de facto be credible.
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price stability and Central Bank Independence discipline credibility and democratic institutions
International Organization, 2015Co-Authors: Christina Bodea, Raymond HicksAbstract:Despite mixed empirical evidence, in the past two decades Central Bank Independence (CBI) has been on the rise under the assumption that it ensures price stability. Using an encompassing theoretical approach and new yearly data for de jure CBI (seventy-eight countries, 1973�2008), we reexamine this relationship, distinguishing the role of printing less money (discipline) from the public's beliefs about the Central Bank's likely actions (credibility). Democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions. CBI in democracies should be directly reflected in lower money supply growth. Besides being more disciplinarian, it also ensures a more robust money demand by reducing inflation expectations and, therefore, inflation. Empirical results are robust and support a discipline effect conditioned by political institutions, as well as a credibility effect.
Sami Alpanda - One of the best experts on this subject based on the ideXlab platform.
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political monetary cycles and a de facto ranking of Central Bank Independence
Journal of International Money and Finance, 2010Co-Authors: Sami Alpanda, Adam HonigAbstract:This paper examines the extent to which monetary policy is manipulated for political purposes by testing for the presence of political monetary cycles between 1972 and 2001. This is the first study of its kind to include not only advanced countries but also a large sample of developing nations where these cycles are more likely to exist. We estimate panel regressions of a monetary policy indicator on an election dummy and control variables. We do not find evidence of political monetary cycles in advanced countries but find strong evidence in developing nations. Based on our results, we construct a new de facto ranking of Central Bank Independence derived from the extent to which monetary policy varies with the election cycle. Our ranking of CBI is therefore based on the behavior of Central Banks during election cycles when their Independence is likely to be challenged or their lack of Independence is likely to be revealed. The ranking also avoids well-known problems with existing measures of Central Bank Independence.
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political monetary cycles and a de facto ranking of Central Bank Independence
Social Science Research Network, 2009Co-Authors: Sami Alpanda, Adam HonigAbstract:Political monetary cycles are less likely to occur in countries with independent Central Banks. Independent Central Banks can withstand political pressure to stimulate the economy before elections or finance election-related increases in government spending. Based on this logic and supporting evidence, we construct a de facto ranking of Central Bank Independence derived from the extent to which monetary policy varies with the electoral cycle. The ranking avoids well-known problems with existing measures of Central Bank Independence and provides independent information about average inflation and inflation volatility differences across countries.
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the impact of Central Bank Independence on political monetary cycles in advanced and developing nations
Social Science Research Network, 2009Co-Authors: Sami Alpanda, Adam HonigAbstract:This paper examines the extent to which monetary policy is manipulated for political purposes during elections. We do not detect political monetary cycles in advanced countries or developing nations with independent Central Banks. We do find evidence, however, in developing countries that lack Central Bank Independence. Furthermore, we find some evidence that these cycles are not caused by monetization of election-related fiscal expansions. This suggests that pressure by politicians on the Central Bank to exploit the Phillips curve may be an important factor in generating political monetary cycles.
Alex Cukierman - One of the best experts on this subject based on the ideXlab platform.
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Central Bank Independence and monetary policymaking institutions past present and future
Social Science Research Network, 2007Co-Authors: Alex CukiermanAbstract:This is an extensive survey of worldwide developments in the area of monetary policymaking institutions during the second half of the twentieth century and beyond. In addition the last section discusses current open issues and future challenges. Section 2 reviews the changes that have occurred in the area of Central Bank Independence (CBI) during the last twenty years, discusses reasons for those developments and provides an overview of accumulated empirical evidence on the relation between CBI and the performance of the economy. Section 3 discusses lessons from stabilization of inflation, reviews the evidence and implications of asymmetric Central Bank objectives and considers the issue of CBI within the broader context of choosing a nominal anchor. Section 4 reviews the impact of effective conservativeness (or Independence) on economic performance in the presence of labour unions. A main insight is that, in the presence of large wage setters, CBI affects real variables like the rate of unemployment implying that conservativeness affects economic performance even in the long run. Section 5 considers future challenges facing modern Central Banks. The discussion presumes that CBI and price stability are here to stay and focuses on issues relating to the conduct of monetary policy by independent Central Banks in an era of price stability. The section discusses the risks associated with flexible inflation targeting, issues of accountability and transparency and the impact of Central Bank capital and finances on its Independence.
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Central Bank Independence and monetary policymaking institutions past present and future
Research Papers in Economics, 2006Co-Authors: Alex CukiermanAbstract:In the past, Central Banks were expected—by law, custom, or both—to use their policy instruments to attain a multitude of objectives, such as high levels of growth and employment, provision of funds to the government, and resolution of balance-of-payment problems. Today Central Banks’ legal and actual Independence is substantially higher than it was twenty years ago, and price stability has become their primary objective. The paper reviews the institutional changes that occurred over the last two decades in the area of Central Bank autonomy and related monetary policymaking institutions around the world, providing an overview of accumulated empirical evidence on the relation between Central Bank Independence and macroeconomic performance. Lessons from inflation stabilization are considered in conjunction with Central Bank Independence within the broader context of choice of nominal anchor. The last part considers future challenges facing independent Central Banks in an era of price stability. Onceinflation has been conquered, the Bank is naturally expected to devote more attention to the stabilization of the output gap. Risks associated with such a flexible inflation-targeting regime are examined, along with issues of accountability and transparency, which become more important in the new regime. The paper also reviews the tradeoffs between democratic accountability and Central Bank autonomy that arise in the context of distribution of Central Bank profits (or losses) between the Central Bank and the government and the choice of Central Bank capital.
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Central Bank Independence Centralization of wage bargaining inflation and unemployment theory and some evidence
European Economic Review, 1999Co-Authors: Alex Cukierman, Francesco LippiAbstract:Abstract This paper proposes a conceptual framework to investigate the effects of Central Bank Independence, of the degree of Centralization of wage bargaining and of the interaction between those institutional variables, on real wages, unemployment and inflation, in a framework in which unions are averse to inflation. This aversion moderates union's wage demands as they attempt to induce the Central Bank to inflate at a lower rate. An increase in the degree of Centralization of wage bargaining (a decrease in the number of unions) triggers two opposite effects on real wages, unemployment and inflation. It reduces the substitutability between the labor of different unions and therefore the degree of effective competition between them. This `reduced competition effect' raises real wages, unemployment and inflation. But the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union. This `strategic effect' lowers real wages, unemployment and inflation. For sufficiently inflation averse unions the interaction between those two effects produces a Calmfors–Driffill type relation between real wages and Centralization. The paper analyzes the effects of Central Bank Independence on the position and the shape of this relation, as well as on inflation and unemployment. The paper features two mechanisms, one of which is novel, through which monetary institutions have real effects. The model implies that if there is a single union social welfare is maximized when the Central Bank attaches a zero weight to inflation. But when the number of unions is larger than one this result is no longer true in general. Empirical evaluation of some of the theoretical implications, using data from 19 developed economies, is for the most part supportive of those implications.
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Central Bank Independence and monetary control
The Economic Journal, 1994Co-Authors: Alex CukiermanAbstract:ing from details, these conclusions imply that inflation is lower the higher is CBI and that, given Independence, countries that pre-announce monetary policy have even lower rates of inflation. Furthermore, there is no evidence that CBI retards growth or investment. As a matter of fact, for LDCs, the evidence points in the opposite direction. Low Independence is associated with lower growth and investment. Some economists feel that excessive Independence may interfere with the potential stabilisatory function of monetary policy. Since fluctuations in the growth rate of the economy are found to be unrelated to CBI, this does not appear to be the case. III. COMMITMENT VIA Central Bank Independence AND
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Central Bank Independence growth investment and real rates
Carnegie-Rochester Conference Series on Public Policy, 1993Co-Authors: Alex Cukierman, Lawrence H Summers, Pantelis Kalaitzidakis, Steven B WebbAbstract:Abstract This paper uses new measures of Central Bank Independence (CBI) for a sample of up to seventy countries in order to investigates the effect of CBI on growth, private investment, productivity growth, and the variability (over time) of growth, controlling for other variables. The proxies for Independence are an aggregate index of legal Independence based on sixteen specific features of the Central Banks' charters and the average turnover rate of Central Bank governors. The paper also addresses the issue of simultaneity between growth and inflation by using an index of political vulnerability of the Central Bank. This index is the fraction of political transitions which are followed, within a short period of time, by a replacement of the governor of the Central Bank. A main finding of the paper is that CBI has a positive effect on growth in LCDs (less-developed countries) and no effect within industrial countries. The paper also presents evidence on the relation between CBI and the distribution of interest.