Central Bank Independence: Where Do We Stand?

Round 1

Reviewer 1 Report

This is a clear and readable account of contemporary issues regarding central bank independence. My only problem with it is, I’m afraid, rather a serious one. In the first half, the paper explains the real issues that have arisen with central banks’ ability to conduct an anti-inflationary independent policy due to financial dominance and/or fiscal dominance, where central banks are forced to give in due to their financial stability concerns. In the second half, the paper reviews standard indicators of central bank independence, particularly those to do with the governance structure, eg the processes for appointing and dismissing the central bank governor. The problem that I see is that these indicators have nothing to do with the issues raised in the first part. They do not capture the central bank’s response to the threat of financial instability arising from issues in the banking system or government behaviour, unless the CB gets into a conflict with the government. As the detailed discussions of Turkiye and other countries make clear, these conflicts can arise for reasons that have little to do with financial or fiscal dominance; equally dominance can occur without political conflict.

I don't think that this problem can easily be remedied, so my recommendation is accept, but the author might consider noting the issue in the discussion of CBI indicators.

Author Response

Dear Mr/Mrs,

Thank you very much for your time and effort to review our article. We appreciate all your comments; we have tried to incorporate your suggestions within the scope of the paper.

Plese see the attachment where we address your comments.

Author Response File: Author Response.pdf

Reviewer 2 Report

This manuscript provides a panoramic view of de jure and de facto central bank independence since the 1990s. This is a worthwhile exercise. Although I am very sympathetic toward this manuscript, I have some reservations that I would like to share. In particular, I believe there are important aspects of the literature missing, and so are some imprecisions in the empirical analysis currently providing roadblocks. Are these aspects dealbreakers for the viability of the manuscript: NO. Instead, I would urge the author(s) to revise their manuscript and complement their analysis. I have outlined these concerns in greater detail below. 

:: The literature review appears to be incomplete. For instance, the recent works of Bodea and Garriga (2022) on the political economy aspects of reversals are missing, so are the insights of Masciandaro and Romelli (2015) and Romelli (2022) and the references therein. In my personal view, these contributions provide further nuances about the viability of central bank independence in recent history. This is particularly problematic because the author(s) conclude that Turkey is the only country that saw a major reversal. I agree with the author(s) that Turkey represents an important case. However, I disagree with the author(s) that Turkey is the only case. In fact, cases such as Argentina, Ecuador, and Venezuela provide evidence that governments have inserted substantial political control over their central banks in recent years, which is also reflected in deteriorating de jure CBI scores. Bodea and Garriga (2022) provide further cases. Also, Kern and Seddon (2021) provide a theoretical framework, showing under which conditions central bank independence is folded back. It would be important to discuss how these contributions add to the literature. 

:: The author(s) share an important observations. Political pressure on central banks often does not translate into actual political action. This is to say: despite substantial political pressure on central banks, neither de jure nor de facto central bank independence changes. This raises the question under which conditions a government succeeds in reversing central bank independence? Are there specific circumstances under which a government achieves this goal? Put differently, why did some governments succeed in undoing CBI, whereas others were not successful? Providing further guidance in the literature on these questions would be important to arrive at more compelling conclusions. 

:: I think Aklin and Kern (2021) do not doubt the benefits of CBI but argue that CBI constrains governments in a way that incentivizes them to implement potentially damaging economic policies. Aklin, Kern, and Negre (2021) expand on this argument and show that this logic also translates into the areas of labor and social policy. Furthermore, there exists substantial evidence about the viability of existing accountability mechanisms and their limitations. For instance, Braun (2021) provides an excellent overview of this literature. It would be important to synthesize the key insights of this work and mention them in the literature review. 

:: The author(s) rely on descriptive statistical analysis and case-based evidence. This is an appealing way of proceeding because it is important to see the mechanisms at play. Nevertheless, I have some concerns about the current version of presenting the empirical evidence provided in the manuscript: 

:: Garriga (2023) and Romelli (2022) have constructed a similar dataset covering central bank independence. Romelli (2022) even uses the same coding protocol. How does the author(s)' proposed indicator compare to these alternative measures? 

:: For the case-based evidence, I think the cases are selected reasonably; however, I am missing a section that motivates case selection. What is the rationale for selecting these cases over others? Why are these cases particularly important to illustrate key mechanisms? 

:: For the cases themselves, it would be important to provide more guidance to the reader. This is to say that the case study discussions could be more precise. The tables presented here are useful, but the author(s) have not embedded this line of reasoning sufficiently to support the main claims in their manuscript. In my view, this would be important to provide more guidance to readers. 

:: On page 12, the author(s) argue that "a high exit rate of central bank governors may be just a reflection of the overall instability of government in the country, instead of an attack on central bank independence." This is an interesting point. It might be helpful to provide more guidance on how to think about the relationship between political instability and central bank turnover rates. Is there any systemic evidence concerning the viability of this relationship? Some recent literature that explored the nexus between central bank independence and the rise of political populism might be particularly useful here. 

I have listed a couple of smaller points in no specific order that the author(s) might consider addressing: 

:: The discussion on page 4 [lines 162 and after that] is insightful. Nevertheless, it misses important contributions to the literature. For instance, Reinsberg, Kern, and Rau-Goering (2021) argue that the IMF assigns conditions strengthening central bank independence to establish a political veto player constraining a government's financial meddling. Furthermore, Bodea and Garriga (2022) and Kern and Seddon (2021), find evidence for the importance of political forces shaping the reversal of CBI. 

:: On page 6, the author(s) confirm that the central bank independence "was mainly formed in 90s and since 2000." I agree with this assessment. However, the author(s) might consider mentioning that the IMF played an important role in doing so, and was a key driver for this turn towards central bank independence. Supporting evidence on the viability of this mechanism is provided by Johnson (2016) and Kern, Reinsberg, and Rau-Goering (2021).  

:: On page 8, the author(s) refer to the case of Slovakia. Why or why not is this relevant for the main line of argument of the paper? A brief explanation would be needed here. 

:: There might be a typo in "sort-term political benefits." 

:: "independence de jure' might also be typo and might read as "de jure independence" --- I would urge the author(s) to use a consistent way to use de jure and de facto central bank independence. 

:: "Central Band of Tuerkiye" should likely read "Central Bank of Tuerkiye" 

Again, the author(s) provide sound motivation for their work, and the insights of their work certainly contribute to our understanding of CBI in action. For this reason, I would recommend the author(s) be given the opportunity to revise their manuscript.   

Author Response

Dear Mr/Mrs,

Thank you very much for your time and effort to review our article. We appreciate all your insightful comments especially in literature review where your suggestions extended our knowledge of contemporary literature. We have tried to incorporate your suggestions within the scope of the paper. All changes are tracked in the article so it can be easily view.    

Please see the attachment where we address your comments.

Regards,

Author Response File: Author Response.pdf

Reviewer 3 Report

I deeply encourage author/s to add brother context of the research in the section "Discussion". I see need to include following aspects:

1. democratic control on government spending, 

2. how populism  could impact CBI?

3. Have you found any research on CBI and countries economic performers?

Last but not least lines 289,290 should be more precise

The reason behind is mainly based on the  tragic death of the National Bank of Poland president´s death in the crash of the Presiden-tial airplane 

should be more precise e.g.

"tragic death in Smolensk (Russian Federation)" and "unclear circumstances". 

Regards

Author Response

Dear Mr/Mrs,

Thank you very much for your time and effort to review our article. We appreciate all your comments; we have tried to incorporate your suggestions within the scope of the paper.

Please see the attachment where we address your comments.

Regards,

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

The revisions of the manuscript have been well crafted the author(s) have done a good job of addressing my concerns.