Measuring independence was quite different among papers. And across various measures of

900 WordsApr 23, 20194 Pages
Measuring independence was quite different among papers. And across various measures of independence the results might not be analogous. Indeed, there are different measures of Central Bank Independence. Two of which are De Jure and De Facto. Implicitly according to Pollard (1993) and Cargill (2013) De Jure means concerning law and De Facto means concerning fact. In particular, these terms are used to characterize legal or political positions. Many researchers relied on De Jure approach and cardinal measures. However, Cargill (2013), Pollard (1993), and Parkin (2013) highlighted that De Facto and ordinal measures are indeed more precise and appropriate in measuring independence. The close relationship between the central bank and the…show more content…
Both economic and political independence lowers inflation but by different percentages. However, Parkin (2013) highlighted that independence of central banks as well as their impact might be challenged. For instance, even with high taxes, central banks are yet incapable of circumventing huge amounts of deficits. Moreover, the emergence of Bitcoins and their active trading threated central banks as they will be restrained by possibly a decline in the claim of their liabilities (Parkin, 2013). By using the same methodology of Alesina and Summers (1993), Carlstrom and Fuerst (2006) found that recently industrialized countries have more independent central banks than before. In general, industrialized nations have higher central bank independence than developing nations (Pollard, 1993, and Cukierman 2008). However, the degree of independence differs among nations (Alesina and Summers, 1993). Parkin (2013) revealed that central banks became more independent after imposing law modifications. It was debated that inflation targeting is usually considered a good point for independence. However, this is not always the case (Cargill, 2013). According to Cargill (2013) Parkin (2013), Alesina and Summers (1993), Carlstrom and Fuerst (2006) and Pollard (1993) it was evidently found that there is a significant inverse relationship between inflation and the central bank independence. In all, it was reported that a down surge in
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