BUSINESS INFORM JOURNAL.

УКР

ENG

Search:

REGISTRATION CERTIFICATE

KV #19905-9705 PR dated 02.04.2013.

FOUNDERS

RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE)

According to the decision No. 802 of the National Council of Television and Radio Broadcasting of Ukraine dated 14.03.2024, is registered as a subject in the field of print media.
ID R30-03156

PUBLISHER

Liburkina L. M.

SITE SECTIONS

Inflation as a Measure of Independence of Central Banks
Ohorilko Y. M.

Ohorilko, Yurii M. (2024) “Inflation as a Measure of Independence of Central Banks.” Business Inform 4:187–198.
https://doi.org/10.32983/2222-4459-2024-4-187-198

Section: Finance, Money Circulation and Credit

Article is written in Ukrainian
Downloads/views: 0

Download article (pdf) -

UDC 336.71

Abstract:
The aim of the article is to study the process of formation of the modern paradigm of independence of central banks, determine the role of inflation in it, outline the criteria for independence and determine the dynamics of legal indicators of autonomy of monetary institutions. It is noted that the impetus for changes in relations between governments and central banks of many industrialized countries was the episodes of high inflation in the 1970s. Awareness of the problem of the time discrepancy between the short-term perspective of political decisions and their long-term impact on the economy provoked institutional changes in the status of monetary institutions. They envisaged the prioritization of central banks’ activities to ensure a consistently low level of inflation and provide independence to achieve it. It is also noted that in countries with economies in transition, the tendency to separate central banks into an independent institution was implemented during the 1990s. The criteria for the independence of central banks are determined by legislation and their charters. These usually include the following: isolation of central bank leadership from political pressure; prohibition to give instructions to central banks in the conduct of monetary policy; a clearly defined purpose of monetary policy; restrictions on lending to government programs and budget deficits. In addition to the formally defined independence, there is also the actual independence of central banks, which is usually outlined through the index of management turnover of monetary institutions and its correlation with the inflation rate. But this does not take into account other (exogenous) factors that affect the inflation rate, which makes the studies less relevant. In addition, the construction of any indices includes an arbitrary weight value of each of them, which reflects the sensitivity of the results obtained depending on their composition. As noted in the study, instead of a static analysis of the indicators of independence of central banks, it is more expedient to determine their modification from the beginning of the formation of the modern paradigm of independence to the present day. The analysis showed that since the beginning of the 1970s, most of the countries studied have changed the rules prohibiting central banks from financing (in any form) the budget deficit. At the same time, obstacles to interference in monetary policy were established. This suggests that the change in these criteria had the greatest impact on the downward trend in the level and volatility of inflation in the period under study.

Keywords: inflation, independence of central banks, monetary policy, budget deficit.

Fig.: 2. Tabl.: 2. Bibl.: 41.

Ohorilko Yurii M. – Postgraduate Student, Department of Financial Technologies and Entrepreneurship, Sumy State University (116 Kharkivska Str., Sumy, 40007, Ukraine)
Email: [email protected]

List of references in article

Alesina, A., and Summers, L. H. “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence“. Journal of Money, Credit and Banking, vol. 25, no. 2 (1993): 151-162. DOI: https://doi.org/10.2307/2077833
Anderson, F. “The quest for economic stability: a study on Swedish stabilization policies 1873-2019“. Scandinavian Economic History Review, vol. 71, no. 2 (2023): 128-156. DOI: https://doi.org/10.1080/03585522.2021.1984300
“Banco de Mexico Law“. Official Journal of the Federation, 23 December, 1993. https://www.banxico.org.mx/regulations-and-supervision/legal-framework/banco-de-mexico-law/%7B073CCF98-39BE-EC8F-E03E-6D4CFFC9FA1A%7D.pdf
“Bank of Slovenia Act“. Official Gazette of the Republic of Slovenia, no. 58/02 (2002): 3-44.
Bod, P. “Targets and Instruments of Monetary Policy in Hungary“. Frameworks for Monetary Stability: Policy Issues and Country Experiences. 1994. https://www.elibrary.imf.org/display/book/9781557754196/ch016.xml
Bodea, C., and Hicks, R. “Price Stability and Central Bank Independence: Discipline, Credibility and Democratic Institutions“. International Organization, vol. 69, no. 1 (2014): 1-38. DOI: 10.1017/S0020818314000277
“Bundesgesetz uber die Schweizerische Nationalbank (Vom 23 Dezember 1953)“. Scweizerisches Bundesblatt, no. 52 (1953): 1093-1113.
“Bundesgesetz uber die Schweizerische Nationalbank (Vom 3 Oktober 2003)“. Amtliche Sammlung. 2003. https://www.fedlex.admin.ch/eli/fga/2003/1105/de
Capie, F. “The Evolution of General Banking“. Policy Research Working Paper, no. 1534 (1995): The World Bank.
Capie, F., and Wood, G. “Central Bank Independence: Can it survive a crisis?“ Monetary History Seminar. Rothschild and Co, London. September, 28 (2012): 1-31. DOI: 10.1017/CBO9781316162774.009
Crowe, C., and Meade, E. E. “The Evolution of Central Bank Governance around the World“. Journal of Economic Perspectives, vol. 21, no. 4 (2007): 69-90. DOI: 10.1257/jep.21.4.69
Cukierman, A., Webb, S. B., and Neyapti, B. “Measuring the Independence of Central Banks and Its Effect on Policy Outcomes“. The World Bank Economic Review, vol. 6, no. 3 (1992): 353-398. DOI: https://doi.org/10.1093/wber/6.3.353
De Haan, J., and Eijffinger, S. “The Politics of Central Bank Independence“. EBC Discussion Paper. 2016. https://www.dnb.nl/media/xtceupg3/working-paper-539.pdf
Galanti, E., D'Ambrosio, R., and Guccione, A. V. “Storia della legislazione bancaria, finanziaria e assicurativa dall'unita d'Italia al 2011“. In Collana storica della Banca d'Italia. Serie contributi, vol. XI. 2012.
“Gezetz uber die Deutsche Bundesbank vom 26. Juli 1957“. Bundesgesetzblatt. 1957. https://www.gesetze-im-internet.de/bbankg/BBankG.pdf
Goodfriend, M. “The Elusive Promise of Independent Central Banking“. Institute for Monetary and Economic Studies, Bank of Japan. Discussion Paper no. 2012-E-9. https://www.imes.boj.or.jp/research/papers/english/me30-3.pdf
Hayo, B., and Hefeker, C. “Do We Really Need Central Bank Independence? A Critical Re-examination“. WWZ-Discussion Paper 01/03, University of Basel, March (2001): 1-31. DOI: 10.2139/ssrn.264454
Hayo, B., and Voigt, S. “Inflation, Central Bank Independence and the Legal System“. ICER Working Paper, no. 2 (2005): 1-37. DOI: http://dx.doi.org/10.2139/ssrn.724661
Ireland, P. N. “Independence and Accountability via Inflation Targeting“. Cato Journal, vol. 40, no. 2 (2020): 269-283. DOI: 10.36009/CJ.40.2.2
[Legal Act of Albania] (1998). https://www.bankofalbania.org/About_the_Bank/Legislation/Law_No_8269_dated_23_12_1997_On_Bank_of_Albania.html
“Law on the Bank of Slovenia, June, 25, 1991, no. 450-03/91-10/3“. Official Gazette of the Republic of Slovenia, no. 1/91-I (1991): 1-37.
[Legal Act of Romania] (1998). https://www.findevgateway.org/sites/default/files/publications/files/mfg-en-paper-law-no-101-of-26-may-1998-on-the-statute-of-the-national-bank-of-romania-the-nbr-act-jun-1998.pdf
[Legal Act of Romania] (2004). https://bnro.ro/The-National-Bank-of-Romania-Act-3384.aspx
“Legal memorandum on the proposal for a new Sveriges Riksbank Act and its compatibility with the Swedish constitution and EU law“. General Secretariat Sveriges Riksbank. March 15, 2021. https://www.riksbank.se/globalassets/media/remisser/riksbankens-remissvar/engelska/2021/legal-memorandum-on-the-proposal-for-a-new-sveriges-riksbank-act-and-its-compatibility-with-the-swedish-constitution-and-eu-law.pdf
“Lov om Danmarks Nationalbank, no. 116. April 07, 1936“. https://www.retsinformation.dk/eli/lta/1936/116
McCallum, B. T. “Should Central Banks Raise Their Inflation Targets? Some Relevant Issues“. NBER Working Paper Series, no. 17005, May 2011. https://www.nber.org/system/files/working_papers/w17005/w17005.pdf
Meltzer, A. H. “What's Wrong with the Federal Reserve: What Would Restore Independence?“ Business Economics, vol. 48 (2013): 96-103. DOI: https://doi.org/10.1057/be.2013.7
Ahtik, M., Erent-Sunko, Z., and Pilipovic, O. “Legal aspects of central banking in Slovenia and Croatia from their beginning up to membership of the euro area“. Croatian Yearbook of European Law and Policy, vol. 8 (2012): 561-580. DOI: 10.3935/cyelp.08.2012.143
Mishkin, F. “Can Central Bank Transparency Go Too Far?“ NBER Working Paper, no. 10829. October 2004. https://business.columbia.edu/sites/default/files-efs/pubfiles/1309/Mishkin_central_bank_transparency.pdf
Mishkin, F. S. “From Monetary Targeting to Inflation Targeting: Lessons from the Industrialized Countries“. NBER: Columbia Business School, Finance, October 1, 2001.
Nergiz Dincerm, N., and Eichengreen, B. “Central Bank Transparency and Independence: Updates and New Measures“. BOK Working Paper, no. 2013-21 (2013.09). https://www.ijcb.org/journal/ijcb14q1a6.pdf
Orphanides, A. “Independent Central Banks and the Interplay between Monetary and Fiscal Policy“. International Journal of Central Banking. 2018. https://www.ijcb.org/journal/ijcb18q2a10.pdf
Orphanides, A. “The Need for a Price Stability Mandate“. Cato Journal. 2014. https://ciaotest.cc.columbia.edu/journals/cato/v34i2/f_0031472_25520.pdf
Parkin, M., and Bade, R. “Central Bank Laws and Monetary Policies: A Preliminary Investigations“. Department of Economics University of Western Ontario. Research Report no. 7804. March, 1978. https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1548&context=economicsresrpt
Posen, A. S. “Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence“. In NBER Macroeconomics Annual 1995. - Volume 10, 253-274. MIT Press, January 1995.
Sturm, J.-E., and de, Haan J. “Inflation in Developing Countries: Does Central Bank Independence Matter“. In CESifo Working Papers, no. 511 (June 2001): 1-17.
Taylor, J. B. “The Effectiveness of Central Bank Independence Versus Policy Rules (Prepared for the session "Central Bank Independence: Reality or Myth?")“. American Economic Association Annual Meeting. San Diego, California. 2013. https://www.hoover.org/sites/default/files/research/docs/central-bank-independence-v-policy-rules-aea-2013.pdf
“The Riksbank's purchases of treasury bills and purchases of bonds during the second half of 2022“. Sveriges Riksbank. April, 27, 2022. https://www.riksbank.se/globalassets/media/rapporter/ppr/engelska/2022/220428/decision-the-riksbanks-purchases-of-treasury-bills-and-purchases-of-bonds-during-the-second-half-of-2022.pdf
“The Sveriges Riksbank Act, promulgated on 24 November 2022“. Swedish Code of Statutes. SFS 2022:1568. https://www.riksbank.se/globalassets/media/riksbanken/lagar-regler--policy/the-sveriges-riksbank-act-2022_1568.pdf
Wachtel, P., and Blejer, M. I. “A Fresh Look at Central Bank Independence“. NYU Stern, Department of Economics, 2019. https://file.pide.org.pk/pdfpideresearch/wb-050-the-autonomy-of-state-bank-a-fresh-look-at-central-bank-independence.pdf
Wood, J. H. “Independent Central Banks: New and Old“. Cato Journal. 2006. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2006/11/cj26n3-11.pdf

FOR AUTHORS

License Contract

Conditions of Publication

Article Requirements

Regulations on Peer-Reviewing

Publication Contract

Current Issue

Frequently asked questions

INFORMATION

The Plan of Scientific Conferences

OUR PARTNERS

Journal «The Problems of Economy»

The site and its metadata are licensed under CC BY-SA.

Write to webmaster