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

Author/Editor:

Marc G Quintyn ; Sophia Gollwitzer

Publication Date:

August 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2010/193

Subject:

Budget planning and preparation Inflation Institutional arrangements for revenue administration Legal support in revenue administration Prices Public debt Public financial management (PFM) Revenue administration

English

Publication Date:

August 1, 2010

ISBN/ISSN:

9781455205233/1018-5941

Stock No:

WPIEA2010193

Pages:

59

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