Associate Professor, the department of international economic relationships, Sumy State University, Sumy, Ukraine
This paper is devoted to defining the role of the central bank in ensuring banking and financial stability. The main purpose of the study is to assess the direction and strength of the impact of central bank independence in terms of its individual aspects on the parameters of banking and financial stability for different groups of countries. Systematization of literature sources and the results of existing empirical research has shown that the expected effects of increasing the independence of the central bank are to improve banking and financial stability. For the study, a sample of statistical data for 10 developed and 10 developing countries for the period 1991-2012 was formed. The methodological basis of the study were the tools of panel regression modeling with fixed effects with Stata software use. The article presents the results of empirical analysis, which showed that the independence of the central bank is an important factor in ensuring banking stability. At the same time, the impact on financial stability has not been conclusively confirmed. The study empirically confirms and theoretically proves that the stage of development of the country determines the strength of such influence. Thus, developed countries generally show closer links between central bank independence and banking and financial stability, which in most cases are directly dependent, while developing countries have less lasting effects. The results of the analysis of the links between certain aspects of central bank independence and the level of banking and financial stability are of great practical value. The results of the study create a scientific basis for substantiating the sequence of actions aimed at strengthening the independence of the central bank. Thus, in developing countries, the focus should be on defining and prioritizing central bank goals, while developed countries should take a deeper approach to this issue and ensure the independence of monetary policy and financial independence of the central bank.
Keywords: central bank, independence, banking stability, financial stability, Z-score, non-performing loans, capitalization, developed countries, developing countries, panel data.
JEL Classification: D53, E58, E63, G21, O16.
Cite as: Dudchenko, V. (2020). Role of Central Bank Independence in Banking and Financial Stability Ensuring. Financial Markets, Institutions and Risks, 4(2), 115-121. https://doi.org/10.21272/fmir.4(2).115-121.2020.
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