The Unassuming Economist

From a paper by Omang Ombolo Messono, Fabrice Assoumou Zambo, and Alexandre Turpin Iroume A. Bouebe:

“While many studies have highlighted the influence of the degree of central bank independence on economic and financial dynamics, less is known about its importance for economic vulnerability. The objective of this paper is to examine, for the first time, the effect of central bank independence on economic vulnerability in Africa. Based on the hypothesis that countries with more independent central banks are less vulnerable to external shocks, we estimate a dynamic panel model using the system generalised method of moments in a sample of 44 African countries between 1990 and 2017. Our results show that an independent central bank can significantly reduce the economic vulnerability of African countries by allowing monetary policy decisions to be made outside political influence, promoting financial stability, and strengthening the credibility of economic policy. These results remain robust to alternative measures of the main variables. Furthermore, the analysis of transmission mechanisms reveals that central bank independence has a negative effect on economic vulnerability in Africa through channels such as GDP growth, financial development, exchange rate misalignments and budget balance. We suggest that policymakers promote central bank independence in the development of public policies to address economic vulnerability in Africa.”