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

59 Pages Posted: 1 Sep 2010

See all articles by Sophia Gollwitzer

Sophia Gollwitzer

Graduate Institute of International and Development Studies (IHEID)

Marc Quintyn

International Monetary Fund (IMF)

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Date Written: August 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: Budgetary policy, Central bank autonomy, Central banks, Developed countries, Governance, Low-income developing countries, Political economy

Suggested Citation

Gollwitzer, Sophia and Quintyn, Marc, The Effectiveness of Macroeconomic Commitment in Weak(Er) Institutional Environments (August 2010). IMF Working Papers, Vol. , pp. 1-58, 2010. Available at SSRN: https://ssrn.com/abstract=1669868

Sophia Gollwitzer

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

PO Box 136
Geneva, CH-1211
Switzerland

Marc Quintyn

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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