MEASURING CENTRAL BANK INDEPENDENCE IN MALAWI: THE NEW INDEX OF INSTITUTIONAL QUALITY APPROACH

Frank Kamanga, Mtendere Chikonda

Abstract


This study applied the Index of Institutional Quality (IQ) methodology to measure the level of independence of the Reserve Bank of Malawi (central bank) and examine its impact on inflation. The IQ methodology assesses independence of central banks based on their actual practices. The methodology is suitable for developing countries whose practices do not fully conform to the laws of Banks that are in place. The study finds that the average independence index of the Reserve Bank of Malawi (RBM) is 15.1, which is more than half below the total index value of 36. This clearly shows that the RBM is not convincingly independent. Although the results show an above-average value for index of monetary policy independence, indications are that the RBM is not free from political pressures as evidenced by below-average values for indices of political and fiscal independence. Using Ordinary Least Square (OLS), the results further show that the low degree of independence by the RBM has contributed to high inflation in Malawi. 

 

JEL: E01, E42, G38

 

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Keywords


index of institutional quality methodology, central bank, Reserve Bank of Malawi, central bank independence, inflation

References


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