Budget deficits, monetization, and central-bank independence in developing countries

BJ Sikken*, J de Haan

*Corresponding author for this work

    Research output: Contribution to journalArticleAcademicpeer-review

    28 Citations (Scopus)

    Abstract

    Using various indicators for central bank independence we examine the relationship between central bank independence and government budget deficits. Using a two-stage procedure we also analyze whether central bank independence affects the monetization of deficits. First, the monetization relation in each country is estimated and then the resulting accommodation coefficients are related to central bank independence. We conclude that only if the turnover rate of central bank governors or the political vulnerability index is used monetary accommodation of deficits is negatively related to central bank independence. There is no relationship between independence and the level of budget deficits.

    Original languageEnglish
    Pages (from-to)493-511
    Number of pages19
    JournalOxford Economic Papers
    Volume50
    Issue number3
    Publication statusPublished - Jul-1998

    Keywords

    • INTERNATIONAL EVIDENCE
    • GOVERNMENT DEFICITS
    • MONETARY-POLICY
    • MONEY GROWTH
    • INFLATION

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