Publication detail

Towards Measurement of Political Pressure on Central Banks in the Emerging Market Economies: The Case of the Central Bank of Egypt

Author(s): Ibrahim Awad ,
Type: Articles in refereed journals
Year: 2008
Number: 1
ISSN / ISBN: 1843-763X
Published in: Review of Economic and Business Studies
Publishing place: Doctoral School of Economics of the Alexandru Ioan Cuza University
Keywords: monetary policy; central bank independence; fiscal dominance; political pressure
JEL codes: E51, E59, H75, C23
Suggested Citation:
Abstract: This paper assesses whether the legal independence granted to the Central
Bank of Egypt (CBE) under the latest legislation is factual. I followed Fry’s methodology,
which assumes that the level of independence of the central bank is determined by fiscal
attributes. In an attempt to develop Fry’s method, I used a simple criterion to assess the
central bank’s independence, namely, that the central bank is actually independent if it
can fulfill its money supply target. Applying this criterion to the CBE and some other CBs
in the developed countries and emerging market economies, we find that: (i) the legal
independence granted to the CBE under the latest legislation is not factual; although the
final objective of monetary policy is to achieve price stability, the CBE failed to fulfill its
money supply target and achieve price stability, because it was responsive to political
pressure and did not react to fulfill its money supply target; (ii) such political pressure on
the CBE is due to fiscal attributes, as measured by domestic credit to the government;
(iii) CBs whose independence is factual, according to our criterion, showed a negative
relationship between the legal indices, as measured by the GMT index, and the fiscal
attributes measured by DCGY. However, the relationship was anomalous when measured
by the rate of inflation.


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