Budget Deficits, Monetization, and Central-Bank Independence in Developing Countries

Bernd Jan Sikken and Jakob de Haan

Oxford Economic Papers, 1998, vol. 50, issue 3, 493-511

Abstract: Using various indicators for central bank independence the authors examine the relationship between central bank independence and government budget deficits. Using a two-stage procedure they also analyze whether central bank independence affects the monetization of deficits. First, the monetization relation in each country is estimated and then the resulting accommodation coefficients are related to central bank independence. The authors conclude that only if the turnover rate of central bank governors or the political vulnerability index is used monetary accommodation of deficits is negatively related to central bank independence. There is no relationship between independence and the level of budget deficits. Copyright 1998 by Royal Economic Society.

Date: 1998
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