Budget deficits, monetization, and centralbank independence in developing countries |
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Authors: | Sikken, Bernd Jan Haan, Jakob de |
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Affiliation: | Department of Economics, University of Groningen PO Box 800, 9700 AV Groningen, the Netherlands |
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Abstract: | Using various indicators for central bank independence we examinethe relationship between central bank independence and governmentbudget deficits. Using a two-stage procedure we also analyzewhether central bank independence affects the monetization ofdeficits. First, the monetization relation in each country isestimated and then the resulting accommodation coefficientsare related to central bank independence. We conclude that onlyif the turnover rate of central bank governors or the politicalvulnerability mdex is used monetary accommodation of deficitsis negatively related to central bank independence. There isno relationship between independence and the level of budgetdeficits |
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