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Do Financial Markets Allow the Independence of Central Banks?

Author

Listed:
  • Damià Rey Miró

    (CEINDO, CEU PhD International School, UAO CEU Business & Economics Department, Barcelona, Spain)

  • Pedro Piffaut

    (Langeron Econometrics, San Diego, California, USA)

  • Ricardo Palomo Zurdo

    (Economics Department, Universidad San Pablo CEU de Madrid, Spain)

Abstract

The research work presented below addresses the possible concern of central bank independence through the development and application of econometric models. The complexity of the modelling has allowed a step further in corroborating that financial independence is not only linked to the appointments and pressures of the states regarding their economic policy but also the role that financial markets play by acting as a force that dictates and contaminates decisions of central banks. In this sense, the paper proposes a theoretical basis for recommendations on the application of the new monetary policy in a more complex environment, both due to the pandemic that was sweeping the world and the bulky debt that countries are carrying. The paper concludes with a series of measures and suggestions that could be addressed by monetary policymakers given the necessary but not easy normalization of monetary policy required at the global level.

Suggested Citation

  • Damià Rey Miró & Pedro Piffaut & Ricardo Palomo Zurdo, 2024. "Do Financial Markets Allow the Independence of Central Banks?," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 13(1), pages 5-26.
    • Handle: RePEc:cbk:journl:v:13:y:2024:i:1:p:5-26
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    More about this item

    Keywords

    Central banks; financial markets; monetary policy; forecasting and simulation; financial econometrics; business cycles; cointegration; co-integrated vector error correction model (VEC).;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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