№ 5/2022

Fìnansi Ukr. 2022 (5): 86–101https://doi.org/10.33763/finukr2022.05.086

MONETARY POLICY

KHOKHYCH Dmytro ¹

¹Kyiv National Economic University named after Vadym Hetman
OrcID ID : https://orcid.org/0000-0003-3787-939X

Independence of central banks: index approach

Introduction. Central bank independence in developed economies and emerging countries requires justi?cation of its status and consolidation of responsibility for price stability in its mandate. The status of the central bank is important for impartial monetary policy decision-making.
Problem Statement. Consolidation of the central bank’s mandate at the legislative level raises the problem of status quanti?cation, which means a way to quantify the status of macroeconomic policy bodies. This leads to the expansion of the powers of the central bank on the index approach basis , which demonstrates a lower level of its independence.
Purpose. The inverse relationship between in?ation and the level of independence of the central bank encourages the search for alternative approaches in the context of quantifying its independence based on the index of constitutional independence, TOR index and index of political vulnerability of management.
Methods. According to OECD countries, developed economies and emerging countries, the GMT index in most countries shows a fairly high ?gure. However, in practice there is a signi?cant di?erence between the formal and actual status of central banks, which a?ects the statistical signi?cance of the relationships obtained.
Results. A study to quantify central bank independence based on an index approach has revealed a number of issues related to the interpretation of the central bank’s mandate, the density of the relationship between indices and in?ation rates, and the quanti?cation of legislation. In countries with weak institutions, asserting the link between in?ation and formal independence is quite complex, as opposed to the political and economic independence of the central bank.
Conclusions. Addressing issues that lead to imbalances between the status of central banks and the consolidation of monetary objectives at the legislative level requires a clear de?nition of the powers and responsibilities of monetary authorities for the results of monetary policy towards achieving price stability.

Keywords:central bank, inflation, economic independence, quality of institutes, GMT-index, political power, price stability.

JEL: E58, E59

KHOKHYCH D. . Independence of central banks: index approach / D. . KHOKHYCH // Фінанси України. - 2022. - № 5. - C. 86-101.

Article original in Ukrainian (pp. 86 - 101)

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