SEEU Review vol. 5 Nr. 2 (pdf) - South East European University

Arjeta VOKSHI-ABAZI and Sulo HADERI
concluded that the degree of financial independence of the central bank was
not a significant determinant of inflation (in the post Bretton Woods period).
Grill, Masciandaro and Tabellini (1991) 1 created two indexes of central
bank independence, one based on economic measures and one based on
political measures. Grill argues that someone can clearly distinguish between
the political independence and the economic independence of the central
bank. A central bank is politically independent if it can choose its main
objectives without taking into consideration the government’s goals. The
economic independence is the capability of central bank to choose and
implement all the policies and instruments that enable the achievement of
these objectives. They found out that the economic independence is
negatively related to the inflation rate. Also, the political independence had a
negative correlation to inflation rate but it was not statistically significant.
Alesina and Summers (1993) found out that the more dependent a central
bank, the greater the variability in inflation rate.
Cukierman (1992) used not only legal measures of central bank
independence, but also he used practical measures such as the frequency of
the turnover of central bank governors and questionnaires completed by
qualified staff at the central bank.
For Issing(1993) the independence of a central bank depends on the
individual factors that determine the personality of the senior managers of
the central bank. To measure personal independence there are used criteria
like: how the governor and the members of the supervisory council of the
central bank are elected, the period of time that they stay in these positions,
the possibility of suspension and the procedures followed in this case.
Bakas (1994-95) suggests that the study the independence of the central
bank must take into consideration three main aspects. Institutional
independence, which refers to the position of the central bank in the
hierarchy of the governmental system and to the procedures followed to
appoint and dismiss its chief executive officers. Functional independence,
which refers to the power and the capacity of a central bank to define and
implement the monetary policy. Financial independence, which refers to the
discretion of a central bank in accumulating and allocating the funds.
Fisher (1995) divides the autonomy of objectives from the autonomy of
instruments.
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They studied even the relation between central bank independence and economic growth. They found no
correlation between central bank independence and growth rate of real output. The same conclusion was drawn
even from Cukierman, Kalaitzidakis, Summers and Webb (1993).