The impact of governance quality on central bank’s independence

  • Received November 11, 2022;
    Accepted December 25, 2022;
    Published January 5, 2023
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/pmf.11(1).2022.10
  • Article Info
    Volume 11 2022, Issue #1, pp. 113-127
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The stable functioning of the public finance system requires a rational regulatory apparatus. The central bank occupies a special place in this system. Science and practice prove that the central bank’s political and economic independence determines its effectiveness. Thus, it is crucial to determine the prerequisites for ensuring its independence. The study aims to assess the influence of governance quality on the central bank’s independence, considering the variance of the socio-political development of countries. The analysis was conducted based on 53 countries. Panel regression modeling with random effects was chosen as a research method. The analysis approach involves calculations for the groups of countries that differ in social and political development parameters according to the following criteria: the initial level of the central bank independence; level of human development; political rights freedom; level of civil liberties; and political regime.
Socio-political factors significantly affect the central bank’s independence in the following conditions: a high initial level of independence of the central bank, a high level of human development, and an average level of political and civil freedom. At the same time, the governance quality ensures the growth of the central bank’s independence regardless of the countries’ political regime. Three factors have the most significant influence on ensuring the independence of the central bank, namely “government efficiency,” “quality of regulation,” and “rule of law.”

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    • Table 1. The influence of governance quality on the level of independence of central banks in 53 countries
    • Table 2. The influence of governance quality on the level of independence of central banks among the countries with different initial levels of independence of central banks
    • Table 3. The influence of governance quality on the level of independence of central banks among the countries with various levels of human development
    • Table 4. The influence of governance quality on the level of independence of central banks among the countries with different levels of political rights
    • Table 5. The influence of governance quality on the level of independence of central banks among the countries with different levels of civil liberties
    • Table 6. The influence of governance quality on the level of independence of central banks among the countries with different political regimes
    • Conceptualization
      Tetiana Vasylieva, Viktoria Dudchenko
    • Methodology
      Tetiana Vasylieva, Viktoria Dudchenko, Yaryna Samusevych
    • Project administration
      Tetiana Vasylieva
    • Validation
      Tetiana Vasylieva, Yaryna Samusevych
    • Formal Analysis
      Viktoria Dudchenko, Yaryna Samusevych
    • Investigation
      Viktoria Dudchenko
    • Supervision
      Viktoria Dudchenko
    • Writing – original draft
      Viktoria Dudchenko
    • Software
      Yaryna Samusevych, Vadym Sofronov
    • Data curation
      Anton Marci
    • Funding acquisition
      Anton Marci
    • Resources
      Anton Marci
    • Writing – review & editing
      Anton Marci
    • Visualization
      Vadym Sofronov