Does Central Bank Independence in Arab Oil Exporters Matter?
Does Central Bank Independence in Arab Oil Exporters Matter?
This chapter shows that central banks in Arab oil exporters are not independent. Low independence reflects institutional arrangements that allow the executive branch to influence, interfere, even dominate central bank operations. In a context of weak institutions, central bank independence (CBI) has not always mattered for macroeconomic policy outcomes. Gulf Cooperation Council (GCC) central banks delivered a better macroeconomic policy performance than those of the populous group because the credible peg discouraged discretion. Soft peg arrangements in the populous economies, in a context of weak institutions and discretionary policymaking and no de facto independent central bank, led to disappointing monetary policy outcomes. As oil exporters adapt to a new normal of low oil prices, the sustainability of fixed exchange rate regimes may not be guaranteed without sound macroeconomic institutions. Stronger institutions and effective accountability mechanisms are needed to insulate central banks from political pressures. In the short term, a rules-based framework could help.
Keywords: central bank independence, monetary policy, exchange rate regimes, institutions, institutional arrangements, oil exporters
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