A Study On Measuring The Central Bank Independence

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This paper aims to contribute to the literature on measuring the Central Bank Independence in Turkey. We see the need for a unique measurement for the CBI in Turkey as Turkey constitutes a special case among other countries with its inflation rates reaching 64% in 1980 's and 74% in 1990 's and dropping lower than 10% in 2000s. How was this accomplished and do the legislative reforms for Central Bank play a role in this? As we tried to answer this question; the need for enhancing the Cukierman index by adding extra variables both for governance and monetary stability was apparent. The variable selection and index extension was made with the help of Cukierman, Webb and Neyapti(1992) methodology together with Haan & Amtenbrink (2003) and Neyapti (2003)’s methodologies. Foreign exchange policy part of the index is created with the help of a survey by Fry, Goodhart and Almeida (1996) about central banks of developing countries. According to our new estimations, we found that after the enactment of law 4651, the independence of CBRT rose to an approximate value of 87%. Empirical studies carried on before show that lower CBI leads to higher rates of inflation and this negative correlation was also proven in our estimations. Two legislations -one in 1970 and one in 2011- both led to higher autonomy and independence in determining the objectives and activities; and it is apparent that same period is the beginning of a downwards trend in inflation rates. In addition; as budget
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