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The Role of Central Banks and the Political Environment in Financial Stability: A Literature Review

Zoe Venter ()

No 2019/89, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Financial instability and the subsequent credit crunches experienced by a number of countries following two decades of global structural reforms highlighted the importance of stabilizing credit supply and assigning a higher importance to financial stability. In this paper, I look at the independence of the Central Bank, the political environment and the impact of these factors on financial stability. I substantiate the literature review discussion with a brief empirical analysis of the effect of Central Bank independence on credit growth using an existing database created by Romelli (2018). The empirical results show that fluctuations in credit growth are larger for higher levels of Central Bank Independence and hence, in periods of financial instability or ultimately financial crises, Central Bank Independence would be reined back in an effort to reestablish financil stability.

Keywords: Central Banks; Central BankIndependence; Financial Stability; Reform; Political Environment (search for similar items in EconPapers)
JEL-codes: E58 F36 N14 N16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Date: 2019-07
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0892019

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