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TechBizLines.com Forum  >Economy  >  US Economy  > Central Bank Of Armenia - What is a Central bank`s independence and how it is measured?
  Posted by priyam_das on : 10/29/2016 5:32:00 PM
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In reply to:"  "raghav_agarwal  for his/her post on 10/29/2016 5:40:00 PM
rupali_saha
10/29/2016 5:41:00 PM

There are several indexes that measure the central bank independence. These include the Alesin Index (1988), the GMT index (Grilli, Masciandaro, Tabellini) (Grilli, V., Masciandaro, D., Tabellini, G., 1991; Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. 1991), the Cukierman index (1992).

The analysis for Armenia, which was carried out by Cukierman (the Cukierman Index) in 2000, sums up estimations for the Central Bank’s independence (Cukierman A., Miller J., Neyapti B., Central Bank Reform, Liberalization and Inflation in Transition Economies. An International Perspective, Journal of Monetary Economics 49, 2002).

The analysis was performed using two groups of criteria. By one group of these criteria, Armenia ranks 1st place among 23 countries of the CIS and Eastern Europe, and by the other group criteria, the country is given the second place.

Based on the 2013 estimates, the Central Bank of Armenia has maintained a high degree of independence.

The following table provides an independent assessment according to the Cukierman (the Cukierman Index) methodology:

 

LVAW

(Legislative variables weighted index, maximum: 1.0)

LVAU

(Legislative variables simple index, maximum: 1.0)

Armenia, 2000

0.85

0.82

Armenia, 2013

0.96

0.92

 

The Central Bank of Armenia independence was assessed in 2013 by the GMT index, which made up 13 (maximum: 16).

Country

Policy

Economic independence

GMT

Developed countries

France

8

7

15

Switzerland

7

8

15

Germany

8

6

14

Italy

8

5

13

U.S.A.

5

7

12

Canada

3

8

11

United Kingdom

3

8

11

Australia

2

8

10

New Zealand

2

5

7

Japan

1

6

7

CIS and other developing countries

Kyrgyz Republic

8

6

14

Bulgaria

8

6

14

Macedonia

8

6

14

Estonia

7

7

14

Czech Republic

7

7

14

Poland

7

7

14

Latvia

6

8

14

Lithuania

7

6

13

Tajikistan

6

6

12

Georgia

7

5

12

Romania

5

6

11

Russia

5

6

11

Azerbaijan

6

4

10

Ukraine

5

2

7

Armenia

7

6

13

 
 
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In reply to:"  "priyam_das  for his/her post on 10/29/2016 5:32:00 PM
raghav_agarwal
10/29/2016 5:40:00 PM

How the central bank independence is measured?
 
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In reply to:"  "jasmin_patel  for his/her post on 10/29/2016 5:33:00 PM
smita_sahoo
10/29/2016 5:34:00 PM

The central bank independence is an important institutional prerequisite for maintaining price stability. Studies suggest that operational independence of central banks contributes to the credibility of implemented monetary policy while enhancing the market reaction to the central bank impulses. Empirical analyses have revealed a direct relation between the central bank independence and low inflation (Cukierman A., Central Bank Strategy, Credibility and Independence; Theory and Evidence, MIT press, 1998).

There are three degrees of the central bank’s independence in terms of monetary policy implementation:

• goal independence

• target setting independence

• operational independence

Goal independence (setting the objective) is the highest degree of independence, which is granted to, for example, the U.S. Federal Reserve System. Based on economic policy priorities, however, the Fed may alter the objective. In case of Armenia, the Central Bank is not entitled with such a degree of independence: the Central Bank’s main objective is defined by the Republic of Armenia Constitution and the Law on the Central Bank. In Armenia, the independence for setting the target indicator is prescribed by the Law on the Budget. The operational independence suggests that the central bank can use its tools independently to achieve the ultimate goal. The Central Bank of Armenia has operational  independence, and this is granted to not all countries’ central banks. An example is the Bank of England which until 1998 had no independence for using tools, and it was the executive power’s competence to interfere.
 
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In reply to:"  "priyam_das  for his/her post on 10/29/2016 5:32:00 PM
jasmin_patel
10/29/2016 5:33:00 PM

What is a central bank’s independence and how it is measured?
 
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