Central Bank Independence and Democracy : Does Transparency Matter?

• Autorzy: Asmaa Mohamed Ezzat , Mona Esam Fayed
• Języki publikacji: EN

Abstrakty

EN

Securing central bank independence (CBI) is considered a vital and common practice in a large number of countries, since this independence is often associated with favorable economic performance, and it isolates monetary policy from the distortions of political business cycles, associated with electoral business or partisan cycles. However, one criticism against CBI is the seemed contradiction between independence and democracy, known as the problem of accountability of the monetary authority. Thus, this study empirically examines the potential effects of central bank transparency and independence on democracy. This would, in turn, attribute to reconciling the presumed contradiction between CBI and democracy, besides disentangling the impact of independence and transparency on democracy. To this end, we regress democracy on both CBI and CB transparency, besides some control variables, for a sample of 100 central banks in year 2010. The preliminary results indicate that CBI is conducive to democracy. However, this relationship is dependent on the level of CB transparency, where high levels of transparency could reverse this positive relation and make CBI an obstacle in face of democracy. Furthermore, CB's transparency is always associated with more democracy, but increasing the level of CBI reduces this positive impact. (original abstract)

Słowa kluczowe

EN

Central bank independence; Transparency; Democracy

PL

Niezależność banku centralnego; Przejrzystość; Demokracja

• Czasopismo: Contemporary Economics
• Rocznik: 2020
• Tom: 14
• Numer: nr 2
• Strony: 90--111

Twórcy

autor

Asmaa Mohamed Ezzat

• Cairo University, Egypt

autor

Mona Esam Fayed

• Cairo University, Egypt

Bibliografia

• Alesina, A. (1989). Politics and business cycles in industrial democracies. Economic Policy, 4(8), 55-98.
• Alesina, A. (1988). Macroeconomics and politics. NBER Macroeconomics Annual, 3, 13-52.
• Alesina, A., & Summers, L. H. (1993). Central bank independence and macroeconomic performance: some comparative evidence. Journal of Money, credit and Banking, 25(2), 151-162.
• Alesina, A., Baquir, R., & Easterly, W. (1999). Public goods and ethnic divisions. The Quarterly Journal of Economics, 114(4), 1243-1284.
• Arat, Z. F. (1991). Democracy and human rights in developing countries. Lynne Rienner.
• Bade, R., & Parkin, M. (1988). Central bank laws and monetary policy. Department of Economics, University of Western Ontario.
• Bade, R., & Parkin M. (1982). Central bank laws and monetary policy. Manuscript, University of Western Ontario (October).
• Baldwin, K., & Huber, J. D. (2010). Economic versus cultural differences: Forms of ethnic diversity and public goods provision. American Political Science Review, 104(4), 644-662.
• Barro, R. J., & Gordon, D. (1983). Rules, discretion, and reputation in a model of monetary policy. Journal of Monetary Economics, 12(1), 101-21.
• Barro, R. J. (1999). Determinants of democracy. Journal of Political Economy, 107(S6), 158-183.
• Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen, A. S. (1999). Inflation targeting: Lessons from the international experience. Princeton University Press.
• Bevger, H., de Haan, J., & Eijffinger, S. C. W. (2000). Central Bank Independence: An Update of Theory and Evidence. CEPR Discussion Paper Series, (2353).
• Bini-Smaghi, L. (1998). The democratic accountability of the European Central Bank. PSL Quarterly Review, 51(205).
• Blinder, A., Goodhart, C., Hildebrand, P., Lipton, D., & Wyplosz, C. (2001). How do central banks talk? Geneva Reports on the World Economy 3. Center for Economic Policy Research.
• Boix, C., & Stokes, S. C. (2003). Endogenous democratization. World Politics, 55(4), 517-549.
• Briault, C., Aldane, A., & King, M. (1996). Independence and accountability. Bank of England WPS, 40.
• Bugaric, B. (2017). The populists at the gates: Constitutional democracy under siege?. Draft paper submitted for the "Public Law and the New Populism" workshop New York University School of Law Jean Monnet Center for International and Regional Economic Law & Justice, September 15-17, 2017.
• Buiter, W. H. (1999). Alice in euroland. JCMS: Journal of Common Market Studies, 37(2), 181-209.
• Cama, G., & Pittaluga, G.B. (1999). Central banks and democracy. Rivista Internazionale di Scienze Sociali, CVII (3), Luglio-Settembre, 107(3) 235-77.
• Crowe, C., & Meade E. (2008). Central bank independence and transparency: evolution and effectiveness. European Journal of Political Economy, 24(4), 763-77.
• Cukierman, A. (1992). Central bank strategy, credibility and independence. MIT Press.
• Cukierman, A., Webb, S., & Neyapti, B. (1992). Measuring the independence of central banks and its effect on policy outcomes. World Bank Economic Review, 6(3), 353-98.
• De Haan, J., & Amtenbrink, F. (2003). A non-transparent European Central Bank? Who is to blame? https://ssrn.com/abstract=1138224
• De Haan, J., Amtenbrink, F., & Eijffinger, S. C. (1999). Accountability of central banks: aspects and quantification. PSL Quarterly Review, 52(209).
• De Mesquita, B. B., & Smith, A. (2009). Political survival and endogenous institutional change. Comparative political studies, 42(2), 167-197.
• De Mesquita, B. B., Smith, A., Siverson, R. M., & Morrow, J. D. (2003). The logic of political survival. MIT Press.
• Diamond, L. (1992). Economic development and democracy reconsidered. American Behavioral Scientist, 35(4), 450-499.
• Dincer, N., & Eichengreen, B. (2014). Central bank transparency and independence: Updates and new measures. International Journal of Central Banking, 10(1), 189-253.
• Dincer, N., & Eichengreen, B. (2010). Central bank transparency: Causes, consequences and updates. Theoretical Inquiries in Law, 11(1), 75-123.
• Dincer, N., & Eichengreen, B. (2008). Central bank transparency: Where, why and with what effects? In: Touffut, J.P. (Eds.), Central Banks as Economic Institutions. Edward Elgar.
• Dumiter, F. C. (2014). Central bank independence, transparency and accountability indexes: A Survey. Timisoara Journal of Economics and Business, 7(1), 35-54.
• Eijffinger, S., & de Haan, J. (1996). The political economy of central-bank independence. Special Papers in International Economics, 19. International Economics Section, Departement of Economics, Princeton. University.
• Eijffinger, S., & Geraats, P. (2006). How transparent are central banks? European Journal of Political Economy, 22(1), 1-22.
• Eijffinger, S., & Schaling, E. (1993). Central bank independence in twelve industrial countries. Banca Nazionale del Lavoro Quarterly Review, 184, 49-89.
• Eijffinger, S., & Schaling, E. (1992). Central bank independence criteria and indices. Research memorandum, 548, Department of Economics, Tilburg University.
• Farrag, N., & Kamaly, A. (2007). Measuring the degree of central bank independence in Egypt (Working Paper No. 4). Faculty of Management Technology, German University of Cairo.
• Faust, J. and Svensson L. (2001). Transparency and credibility: Monetary policy with unobservable goals. International Economic Review, 42, 369-97.
• Feng, Y. (2005). Democracy, governance, and economic performance: Theory and evidence. MIT press.
• Fry, M., Julius, D., Mahadeva, L., Roger, S., & Sterne, G. (2000). Key issues in the choice of monetary policy framework. In: L. Mahadeva. & G. Sterne. (Eds.), Monetary Policy Frameworks in a Global Context, (pp. 1-216). Routledge.
• Geraats, P. (2002). Central bank transparency. Economic Journal, 112(483), 532-565.
• Greenspan, A. (1996). The challenge of central banking in a democratic Society. Remarks by chairman Alan Greenspan at the annual dinner and Francis Boyer lecture of the American Enterprise Institute for Public Policy Research, Washington, D.C., 5 December 1996, Federal Reserve Board, available at: http/www.federalreserve.gov/boarddocs/speechs.
• Grilli, V., Masciandaro, D., & Tabellini, G. (1991). Political and monetary institutions and public financial policies in the industrial countries. Economic Policy, 6(13), 341-92.
• Hadenius, A. (1992). Democracy and development. Cambridge University Press.
• Hadenius, A., & Teorell, J. (2005). Cultural and economic prerequisites of democracy: Reassessing recent evidence. Studies in Comparative International Development, 39(4), 87-106.
• Hibbs, D.A. (1977). Political parties and macroeconomic policy. American Political Science Review, 23, 1467-1488.
• Inglehart, R., & Welzel, C. (2006). Modernization, cultural change and democracy: The human development sequence. Cambridge University Press.
• Isbester, K. (2011). The paradox of democracy in Latin America: Ten country studies of division and resilience. University of Toronto Press.
• Issing, O. (1999). The eurosystem: Transparent and accountable or 'Willem in Euroland'. Journal of Common Market Studies, 37, 503 - 519.
• Jácome, M. L. I. (2001). Legal central bank independence and inflation in Latin America during the 1990s. International Monetary Fund.
• Jacome, L., & V´azquez, F. (2008). Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean. European Journal of Political Economy, 24(4), 788-801.
• Kydland, F. E,. & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), June, 473-91.
• Leiderman, L., & Svensson, L. E. O., (Eds.), (1995), Inflation targets. Centre for Economic Policy Research.
• Lindbeck, A. (1976). Stabilization policies in open economies with endogenous politicians. American Economic Review Papers and Proceedings, 66, 1-19.
• Lipset, S. M. (1959). Some social requisites of democracy: Economic development and political legitimacy. American Political Science Review, 53(1), 69-105.
• Lipset, S. M., & Lakin, J. M. (2004). The democratic century. The University of Oklahoma Press.
• McCallum, B. (1996). Crucial issues concerning central bank independence. NBER Working Paper 5597. https://www.nber.org/papers/w5597
• Mishkin, F. S. (1999). Central banking in a democratic society: Implications for transition countries. Central Banking, Monetary Policy and the Implications for Transition Economies, 31-53.
• Nolan, C., & Schaling, E. (1996). Monetary policy uncertainty and central bank accountability. Bank of England Working Paper, No. 54, October.
• Nordhaus, W. D. (1975). The political business cycle. The review of economic studies, 42(2), 169-190.
• North, D. C., Wallis, J. J., & Weingast, B. R. (2009). Violence and social orders: A conceptual framework for interpreting recorded human history. Cambridge University Press.
• Parkin, M. (2012). Central bank laws and monetary policy outcomes: A three decade perspective. Paper prepared for the session "Central bank independence: Reality or myth?" organized by Thomas Cargill (University of Nevada-Reno) at the meetings of the American Economic Association, San Diego, January 4, 2013.
• Plattner, M. F., Diamond, L. J. & Schedler, A. (1999). The self-restraining state: Power and accountability in new democracies. Lynne Rienner Publishers.
• Przeworski, A., & Limongi, F. (1997). Modernization: Theory and facts. World Politics, 49(2), 155-183.
• Przeworski, A., Alvarez, M. E., Cheibub, J. A., & Limongi, F. (2000). Democracy and development. Political institutions and well-being in the world, 1950-1990. Cambridge University Press.
• Ross, M. (2001). Extractive sectors and the poor. An Oxfam America report. Oxfam America.
• Sargent, N. J., & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of Minneapolis Quarterly Review, 5, 1-17.
• Siklos, P. (2011). Central bank transparency: Another look. Applied Economics Letters, 18(10), 929-33.
• Siklos, P. (2002). The changing face of central banking: Evolutionary trends since World War II. Cambridge University Press.
• Sousa, P. (2002). Central Bank Independence and Democratic Accountability. http://ssrn.com/abstract=2172520
• Stasavage, D. (2003). Transparency, democratic accountability and the economic consequences of monetary institutions. American Journal of Political Science, 47(3), 389-402.
• Teorell, J., Dahlberg, S., Holmberg, S., Rothstein, B., Sundin, P., Hartmann, F., & Svensson, R. (2015). The Quality of Government Dataset. version 15 January 2015, University of Gothenburg: The Quality of Government Institute, http://www.qog.pol.gu.se.
• Tobin, J. (1994). Panel discussion: How can monetary policy be improved? In: Fuhrer J.C., ed., Goals, guidelines, and constraints facing monetary policymakers. Proceedings of a conference held at North Falmouth, Massachussetts, June, Federal Reserve Bank of Boston, Conference Series, N. 38, 232-36.
• Zakaria, F. (1997). The Rise of Illiberal Democracy. Foreign Affairs, 76(6), 22-23.

Identyfikatory

DOI

10.5709/ce.1897-9254.334