EFECTOS DEL SURFACTANTE EXÓGENO POSTNATAL SOBRE EL PREMATURO

Country Institutional Determinants 1 2 3 4 5 6 7 Overall Index of Independence 8 Australia * * * * * * 6 Austria * * * * 6 Belgium * * « * 6 Canada * * * $ * iC* 7 Denmark * * * ** 5 Finland ** 2 France * * 5 Germany * * $ * * * * 7 Greece * $ 2 Ireland * * $ * 4 Italy * 1 Japan * * * * * 5 Netherlands * $ * * 4 New Zealand * * * 3 Norway * * * * 7 Portugal $ * 2 Spain * * * 3 Sweden * * 2 Switzerland * * * * * ** 7 UK * * * * * 5 US * * * * * $ * 7 TABLE 2.20 Masciandaro/Spinelli (1994, p. 438)

Measures of Central Bank Independence

Note: 1 = direct credit facility: not automatic

2 = direct credit facility: market interest rate 3 = direct credit facility: temporary

4 = direct credit facility; limited amount

5 = central bank does not participate in primary market for public debt

6 = discount rate set by central bank

7 = banking supervision not entrusted to the central bank (**) or not entrusted to the central bank alone (*)

8 = sum of each row

The resulting indices are highly complete and instructive since they incorporate all the institutional determinants applied in previous indices. Nevertheless, one should note that there is no non-arbitrary way of aggregating the determinants to a composite index. M asciandaro and Spinelli allow trade-offs between the criteria due to symmetrical weighting. The results show a somewhat different ranking of various central banks in comparison to previously constructed indices. This is to a great extent due to the grouping procedure. Finland meets the highest number of institutional attributes of political independence and qualifies with a overall score of 7

as the politically most independent central bank in the OECD countries. Finland is followed suit by Germany with a numerical value of 6 for political independence. The

UK performs poorly by obtaining only one asterisk for attribute five, no participation of government representative in the central bank board. The outcome reverses for some countries in the category of functional independence. Germany ranks again at the top of the list with the highest degree of functional independence (index = 7). The central banks of Norway, Canada, and Sweden enjoy the same degree of functional independence as the Bundesbank. Finland on the other hand is highly dependent on the government as an index of two indicates. The Bank of England performs rather well and can be classified as intermediate bank in terms of functional independence. The results show that there is not always a correlation between functional and political independence, which complicates a systematic ranking of the central banks. Because of this lack of correlation, Masciandaro and Spinelli constructed a table

which standardises the rankings of central banks' independence which have come out of the previous empirical literature. The results of this regression classify once again Germany, Switzerland, and the United States as the countries with the most independent central banks (overall independence). MS, therefore, conclude that the rankings obtained by considering all institutional determ inants are generally consistent with those of the previous literature.

In the last part of their analysis, Masciandaro and Spinelli investigate the relevance of institutional constraints as determinants of CBI in the view of central bankers. The central bankers were asked (i) to state if something relevant was missing from the list of institutional determinants, and (ii) to assign a weight (in the 0 -1 range) to each

determ inant of independence according to its perceived relative importance. According to the responses, central bankers considered the list of institutional

determinants as exhaustive. The following two diagrams^^ show which importance the central bankers attached to the individual determinants.

0.7- 0.6- 0.5- 0.4- 0.3- 0.2- FIGURE 2.4 Note: 1 = governor not ap]X)intcd by government is required

2 = governor appointed for more than 5 years 6 = statutory requirement that central bank 3 = Ward not appointed by government pursues monetary stability

4 = no government's representative on the botud 7 - legal provision about conHiet between 5 = no government approval of monetary jxilicy central bank and government

Measures of Central Bank Independence 0.9-, 0.7- 0.6- 0.5- 0,4- 0.3- 0.2-

Note: 1 = credit to the government: not automatic

2 = credit to the government; at market interest rate 3 = credit to the government: temporary

4 = credit to the government: of limited amount 5 = central bank does not participate in ,>rimary

market for public debt

6 = discount rate set by central bank 7 = banking su]3crvision not entrusted to

Uie central bank alone

In terms of political independence, the central bankers attached great importance to the statutory mandate of the central bank to pursue the goal of price stability (column 7, figure 2.4) and to the independence of the central bank in the formulation of monetary policy (column 6, figure 2.4). The full control over the discount rate

(column 6, figure 2.5) and the control of credit to the government (column 1 and 4,

figure 2.5) were regarded as most relevant determinants of functional independence.

The information obtained from the questionnaire show that the indicators and determinants considered and established by the empirical literature are meaningful

and appropriate for the determination of the degree of central bank independence.

Masciandaro and Spinelli conclude from their findings that one should always pay considerable attention to the institutional constraints which central bankers face if one wants to describe, analyse, and compare monetary regimes. Furthermore, ''the indicators o f political and functional independence demonstrate how one could bring monetary stability to inflation-prone EU countries

2.9 Concluding Remarks

For many years economists have analysed the optimal conduct of monetary policy purely within a theoretical framework, lacking empirical evidence to confirm the

drawn conclusions. With the pioneering work by Bade and Parkin, the empirical

dimension was finally approached in a first attempt to compare central bank laws and

monetary policy of twelve industrial countries and to construct an index indicating the

degree of central bank independence. Studies by Alesina (1988), Grilli et al. (1991),

Cukierman (1991), Alesina and Summers (1993), Eijffinger and Schaling (1993), and

others followed, providing more empirical evidence for the intellectual case for CBI by taking more countries and institutional constraints into consideration. The resulting indices differ from each other in the number of institutional constraints incorporated,

in the number of countries considered, in the weights assigned to the individual attributes, and in the aggregation procedure. Nevertheless, the overall outcome is the same, with minor variations in the ranking of some central banks as a result of interpretation and criterion effects^^. However, before drawing conclusions from these legal indices, one should be aware of the fact that there are various problems associated with such indices which are not to be neglected. As various studies^^^ show, there is a possibility that actual monetary practice deviates from the central bank law which calls for an index reflecting actual independence. Cukierman investigated in his study this dimension by sending a questionnaire to central bankers of various countries to consider the spirit of the law and its application in practice and constructed an index of actual CBI. The findings suggest that the index of actual independence is a better indicator to describe the monetary arrangements in

developing countries rather than the index of legal independence. In the group of industrialised countries, deviations in the legal implementation from the central bank

See for explanation p. 56 following

Measures of Central Bank Independence

laws are less common. One can therefore conclude that the legal index of independence is indeed an appropriate indicator to describe monetary reality in the latter group of countries. Moreover, according to a Pearson correlation test for positive correlation between empirical and legal CBI, carried out by Eijffinger et al. in 1994^^, the ES index is the only index which shows a significantly positive relation with actual independence on a level of one percent. Therefore, the ES index seems to be the best proxy to capture both sides, the law and the actual implementation of the law and is for that reason slightly more difficult to construct and likely to change more frequently, whenever changes in the actual practice occur.

Another problem of purely legal based indices is that laws are incomplete in terms of an explicit specification of the division of authority between the central bank and the government which leaves often room for interpretation. There are other than legal factors, such as tradition, personalities, historical as well as political factors which partly shaped the existing monetary arrangements and affect the application of the law in practice^^. These factors are hard to quantify and to define, which makes it difficult to find a systematic indicator. In the various indices, the interpretation of the law always incorporates unavoidable subjective elements leading to different numerical values for the indices of some central banks. Another problem lies in the impossibility to aggregate the criteria applied to the sample countries in a non-arbitrary way. As mentioned earlier, the weighting procedure varies between the indices, a symmetrical weighting of the criteria could lead to trade-offs between the different attributes,

whereas the problem of an asymmetrical weighting is the differing views concerning

the importance attached to the individual criteria.

Although it is generally accepted that central bank independence is a useful institutional device, which exerts a restraining effect on money growth, the empirical

Eijffinger/van Rooij/Schaling (1994, p. 23) Banaian ct al. (1983)

findings, however, do not demonstrate such a clear-cut inverse relation between legal independence of central banks in industrialised countries and the average rate of inflation, as claimed by the theoretical literature. The general claim is that CBI is negatively related to the level and variance of inflation and not related to the average economic growth rate. Cukierman's findings invalidate this proposition for the group of developing countries, where the statistical results do not provide evidence that central bank laws contribute to explaining different rates of inflation across periods and between countries. On the other hand, the proposition is valid for the group of industrial countries as the findings by various authors show. Eijffinger and Schaling (1993) tested these propositions by regressing the average rate of inflation, the variance of inflation, and the average economic growth rate on the Bade-Parkin index, the Alesina index, the GMT political index, and their own index of central bank independence. They find that the empirical results confirm the theoretical relation between CBI and the average rates of inflation and economic growth, while no positive significant relation between CBI and the variability of inflation could be

found^3. The latter result stands in contrast to findings by De Haan and Sturm*^^ who

found a negative significant relationship between CBI and inflation variability for the

period 1961-1987.

Despite the shortcomings and the criticism, the empirical literature succeeds in

demonstrating that institutional constraints on central banks' behaviour matter a lot in theory as well as in practice. Indices of central bank independence provide a valuable insight into the design of monetary regimes and the ground on which diverging outcomes of monetary policy can be analysed and explained. As the results of the empirical analyses have shown, the central banks of Germany and Great Britain differ fundamentally in their respective legal arrangements and mandates. The Bundesbank

The results of the study by Eijffinger el al. ( 1994) confirm these findings.

^ De Haan/Sturm (1992, pp. 310-12); Alesina (1988) found also that CBI reduces inflation variability. Bade and Parkin (1988), however, did not find evidence for reduced inflation variability.

Measures of Central Bank Independence

is one of the most independent central banks, whereas the Bank of England is highly

dependent on the government. The actual conduct and outcome of monetary policy in these two monetary regimes are subject to a detailed analysis in the second part of this paper, to corroborate the 'intellectual case for CBI' on the basis of these two concrete examples of alternative monetary arrangements.

Monetary Policy in the United Kingdom

The Conduct of Monetary Policy in the