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Measuring the Degree of Central Bank Independence in Egypt

Noha Farrag () and Ahmed Kamaly ()
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Noha Farrag: Faculty of Management Technology, The German University in Cairo
Ahmed Kamaly: American University in Cairo

No 4, Working Papers from The German University in Cairo, Faculty of Management Technology

Abstract: The past few years have witnessed a trend of increased delegation of authority to central banks. Increasing central bank independence is a recommended strategy for governments to establish a credible commitment to price stability as the final objective of the monetary authority, even at the cost of other objectives that may be more appealing to the political authorities. Existing literature on measuring central bank independence focuses on developed countries where quantifying the independence of central banks is easier, since quantifying the legal charter is sufficient to reflect the degree of central bank independence. However, in developing countries this task is thorny as quantifying the legal charter is often insufficient, since laws are often incomplete, ambiguous, or simply not respected. Thus, quantifying other indicators that reflect actual practice is required to capture any divergence between legal and actual practices. This paper attempts to quantify the degree of independence in the central bank of Egypt (CBE), from both a legal and behavioural context, since its establishment in 1961 until 2004. The study uses four indices in line with the work of Jacome (2001), Cukierman, et al. (1992), and Cukierman and Webb (1995), where each index is designed in such a way to capture a somewhat different aspect of independence. This study captures the discrepancies between the degree of independence conferred to the CBE by law and actual practice. The empirical findings of this paper offers insights about the direction of efforts that should be made to enhance central bank independence which is the key to achieving price stability and the stability of the financial system in general.

Keywords: Central bank independence; Central Bank of Egypt; price stability; central bank credibility; indices of central bank independence; monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2007-12
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
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http://mgt.guc.edu.eg/wpapers/004farrag_kamaly2007.pdf First version, 2007 (application/pdf)

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