Why do central banks undertake institutional reforms?
In this paper Davide Romelli uses data from 155 countries over the period 1972-2017 and constructs a new dynamic index of central bank independence. He shows that regional convergence represents an important driver of changes in central bank design. Other factors that contribute are:
- Periods of high inflation rates lead to more reforms, suggesting an endogenous evolution of central bank independence;
- An external pressure, such as obtaining an IMF loan, also impacts the reform process;
- Political or economic factors have a heterogeneous impact depending on the level of economic development.
The Political Economy of Reforms in Central Bank Design
Author: Davide Romelli
From: Trinity College
Implications of the monetary policy framework reviews
Tobias Adrian argues that the Fed and the ECB were motivated by three factors to review their monetary policy frameworks:
- The decline in the equilibrium real interest rate;
- The fact that the low inflation of the past decade was dragging down long-term inflation expectations;
- The flattening of the Phillips Curve.
But he warns:
Even if upside inflation risks fail to materialize — as we expect— the new strategies will require more prolonged monetary-policy accommodation. Thus they may amplify the global “search for yield,” cause leverage to rise, and eventually raise financial-stability risks, including in Emerging Market and Developing Economies.
Review of Monetary Policy Frameworks
Author: Tobias Adrian
From: IMF
