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Central bank independence: The case of Croatia

Tomislav Ćorić ; Faculty of Economics and Business, University of Zagreb
Dajana Cvrlje ; Faculty of Economics and Business

Abstract

A trend of increasing role of central bank's independence took place in the most of modern economies. The
central bank independence (CBI) is seen as a way of bringing economy to a higher level. It is argued that an
independent central bank is more credible and moreover, that the higher degree of central bank independence
facilitates central bank to identify signals of financial problems and alert financial markets. Furthermore, an
independent central bank is less likely to be exposed to the inflationary bias, inherent in monetary policy, and is
more aware of the inflation costs of expansionary monetary policy. This is in line with Friedman’s theoretical
concept that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the
national economy by the central bank. In order to achieve the main goal; price stability, it is essential for a
central bank to be connected to government as little as possible. However, governments generally have a
certain influence over central banks, even in the case of banks who claim to be independent. The first part of
the paper offers theoretical background for the central bank independence (CBI concept). The empirical
evidence on the relationship between central bank independence and economic variables suggests negative
relationship between central bank independence and inflation. The strong evidence of central bank
independence influence on other macroeconomic variables so far has not been found. The analysis of the
independence of Croatian national bank was made using 3 different methods; 1) central bank governor turnover
rate (TOR), 2) Petursson G. Thorarinn criterion and 3) Cukierman, Webb and Neyapti (CWN) questionnaire.
The obtained results affirm high level of central bank independence in Croatia.

Keywords

monetary policy; central bank independence

Hrčak ID:

136971

URI

https://hrcak.srce.hr/136971

Publication date:

12.11.2009.

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