Browsing by Subject "Central Bank Independence"

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Open Access
Central bank independence, financial market development and inflation
(2008) Küsmen, Gamze
Central bank independence (CBI) and inflation relation has long been a debate and is established in many studies, such as Bade and Parkin (1982), Alesina (1988, 1989), Grilli, Masciandaro, and Tabellini (1991), and Cukierman, Webb and Neyaptı (1992). Although these studies address the negative relation between CBI and inflation, they do not consider the effect of the development level of financial markets on this relation. Posen (1995) considers the effect of financial market development by using effective financial opposition to inflation formed by the inflation-averse groups. He tests the effect of this variable on CBI and inflation simultaneously. He claims that the variable, which decreases inflation is effective financial opposition to inflation (when used with CBI) rather than CBI. Thus, he states that rather than analyzing the direct relation between inflation and CBI, the effect of effective financial opposition to inflation on CBI and inflation should be investigated. Based on this study, this thesis looks at the effect of financial market development (FMD) both on CBI and on the relation between CBI and inflation by using alternative indicators for FMD. We find that there is a significant and positive relation between CBI and FMD for non-transition countries. Moreover, although Posen (1995) states that CBI does not have a significant effect on inflation when EFOI is included as an additional explanatory variable, we find evidence that both FMD and CBI have a significant effect on inflation. However, the results of the estimations are not robust to changes in samples.
Open Access
Essays on uncertainty
(2015) Karaman, Seçil Yıldırım
This dissertation consists of three essays on the real impacts of uncertainty shocks. The first essay develops a theoretical model to investigate the impact of financial market uncertainty on real economic downturns. The second and third essays empirically investigate the differences in the adverse impact of uncertainty shocks on real output for countries with different financial development levels and central bank characteristics. The first essay investigates whether financial market volatility induces real downturns in a dynamic stochastic general equilibrium framework with heterogenous agents. In the model, an increase in the volatility of future stock price expectations of nonsophisticated agents causes an increase in the volatility of stock prices. In response to the increase in stock price volatility, the model generates reduction in consumption, investment, employment and output. The model contributes to the literature by modeling financial market volatility in a general equilibrium framework, highlighting the mechanisms through which the impact works, and providing estimates of its magnitude. The second essay investigates whether financial development moderates the negative impact of uncertainty shocks on real economic activity. To test this conjecture, I compare the impact of macro level uncertainty as measured by stock market volatility on real GDP growth for countries with different financial development levels. To address potential endogeneity concerns, the estimation is made using Two Stage Least Squares technique where plausibly exogenous disaster shocks are used as instruments for stock market volatility. The estimation results based on a panel data set of 54 countries between 1971 and 2009 are consistent with the conjecture that uncertainty shocks hurt countries with developed financial markets less. The third essay investigates the role of institutional characteristics of the central banks in moderating the negative consequences of uncertainty shocks using the same identification strategy as the second essay. The results provide strong evidence that central bank independence reduces the adverse effects of uncertainty shocks. As for the impact of central bank transparency, while in some specifications the results support its mitigating impact on the adverse effect of uncertanity, in others it doesn’t have a significant moderating impact. In the light of the restrictions on the transparency data set which spans 44 countries between 1998 and 2009, more comprehensive studies may be needed to reach a stronger verdict for its impact.