BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 13/2000:
Measuring Central Bank Independence in Selected Transition Countries and the Disinflation Process
Sandra Dvorsky ()
Abstract: The paper measures the degree of legal and actual central
bank independence (CBI) in five Central and Eastern European transition
economies striving for EU accession, namely the Czech Republic, Hungary,
Poland, Slovakia and Slovenia (CEEC-5). The degree of legal CBI is measured
by applying the two most widely used indices, the Cukierman and the
Grilli-Masciandaro-Tabellini (GMT) indices. Moreover, the turnover rate of
central bank governors is used as a proxy to measure actual CBI. The paper
gives an interpretation of computed results, comparing the findings with
those of other authors and earlier calculations. Furthermore, the indices
on legal and actual CBI themselves are critically reviewed, in particular
against the background of the Maastricht Treaty requirements, which in
practice constitute the driving force for any amendment of central bank
laws in the CEEC-5. Moreover, the role of CBI in bringing down inflation in
the CEEC-5 at different stages of transition is briefly discussed. The
paper concludes that the overall degree of legal CBI is comparatively high
in all countries examined, while the measured turnover rates of governors
do not seem to fully reflect the degree of actual CBI in the CEEC-5.
Looking at the role of CBI in the disinflation process at different stages
of transition, the main causes for inflation seem to have been beyond the
direct control of the central bank. A high degree of CBI, together with a
reasonable mix of fiscal and monetary policies as well as structural
reforms, will be necessary for the CEEC-5 to meet all requirements for
joining the EU and, in a more distant future, for adopting the euro.
Keywords: transition; central bank independence; disinflation; (follow links to similar papers)
44 pages, December 12, 2000
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