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Does an Independent Central Bank Smooth Exchange Rate Volatility? Evidence from Time-Varying Panel Causality Analysis

Author

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  • Durmuş Çağrı Yıldırım

    (Tekirdag Namık Kemal University, Department of Economics, Tekirdag, Turkey)

  • Ömer Esen

    (Tekirdag Namık Kemal University, Department of Public Finance, Tekirdag, Turkey)

  • Uğur Çınar

    (Tekirdag Namık Kemal University, Department of Economics, Tekirdag, Turkey)

Abstract

This paper empirically examines the effect of the central banks independence on exchange rate volatility by using a large dataset for the E7 (7 emerging countries) covering the period 1998-2017. This paper applies the time-varying panel causality analysis to obtain country-based results. The results show that the policy design, with relatively independent central banks, provides supportive results for macroeconomic stability. It is concluded that policies focusing on current problems by ignoring macroeconomic stability, such as the 2008 crisis, have eliminated the relationship between bank independence and stability.

Suggested Citation

  • Durmuş Çağrı Yıldırım & Ömer Esen & Uğur Çınar, 2024. "Does an Independent Central Bank Smooth Exchange Rate Volatility? Evidence from Time-Varying Panel Causality Analysis," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 13(3), pages 219-244.
    • Handle: RePEc:cbk:journl:v:13:y:2024:i:3:p:219-244
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    More about this item

    Keywords

    Time-varying panel causality analysis; E7 countries; Central Bank; Monetary Policy Strategy.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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