The Effectiveness of Macroeconomic Commitment in Weak(er) Institutional Environments

59 Pages Posted: 24 Aug 2010

See all articles by Marc Quintyn

Marc Quintyn

International Monetary Fund (IMF)

Sophia Gollwitzer

Graduate Institute of International and Development Studies (IHEID)

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Date Written: August 23, 2010

Abstract

This paper analyzes the institutional conditions affecting the establishment and effectiveness of independent central banks and of budgetary institutions. It draws on the recent theory developed by North, Wallis and Weingast on the transition from a closed and fragile state to an open economic and political environment. The paper presents a composite indicator allowing for the identification of a country’s position along this transition path. The findings suggest that (i) while the establishment of autonomous central banks seems to be relatively independent from the broader institutional framework, sound budgetary institutions tend to be established in countries with higher levels of rule of law for the elites, and (ii) while central bank independence is effective in reducing inflation irrespective of a country’s position along the transition path, budget institutions seem to be most effective as a disciplining device in weak institutional environments.

Keywords: Macroeconomic Commitment Institutions, Political-Economic Institutions, Central Bank Independence, Budgetary Institutions, Doorstep Conditions

JEL Classification: E52, E58, E62, H61, O23, P16, P48

Suggested Citation

Quintyn, Marc and Gollwitzer, Sophia, The Effectiveness of Macroeconomic Commitment in Weak(er) Institutional Environments (August 23, 2010). Available at SSRN: https://ssrn.com/abstract=1663855 or http://dx.doi.org/10.2139/ssrn.1663855

Marc Quintyn (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Sophia Gollwitzer

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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