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Legal and actual central bank independence

Author

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  • Artha, I.K.D.S.
  • de Haan, J.

    (Groningen University)

Abstract

Indicators of central bank independence (CBI) based on the interpretation central bank laws in place may not capture the actual independence of the central bank. This paper develops an indicator of actual independence of the Bank Indonesia (BI), the central bank of Indonesia, for the period 1953-2008 and compares it with a new legal CBI indicator based on Cukierman (1992). The indicator of actual independence captures institutional and economic factors that affect CBI. We find that before 1999, legal and actual independence of BI diverged substantially. After a new central bank law was enacted, the legal independence of BI increased and converged to actual independence.

Suggested Citation

  • Artha, I.K.D.S. & de Haan, J., 2010. "Legal and actual central bank independence," Research Report 10004, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:10004
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    File URL: http://hdl.handle.net/11370/cb11e5ee-7cf3-49e0-b02c-423144f6cbed
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    References listed on IDEAS

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