Central Bank Independence and its Effect on Inflation in the ESCWA Countries

In this study, we measure the central bank independence for all fourteen ESCWA countries using two indicators: the legal independence and accountability measure (the de jure measure) and the turnover rates of central bank governors (the de facto measure). The entire sample of countries is split into two subsamples: oil exporting and oil importing countries. The legal index shows that the central banks of Iraq and Palestine are the most independent central banks, while the central banks of Sudan and Syria are the least independent among both the oil exporting and oil importing countries respectively. The de facto measure shows that the central banks of Kuwait and Jordan are the most independent central banks, while the central banks of Sudan and Egypt are the least independent among the oil exporting and the oil importing countries respectively. Our study reveals that the central bank independence has improved remarkably in the region since the 1980s and has closely followed the worldwide trend of granting central banks more independence from the executive branch. Our regression analysis proves that a higher degree of central bank independence would statistically improve the inflation performance in the entire region and in the two subsamples, basically by lowering the inflation rates level and decreasing volatility. Finally, our study pinpoints the legally weak provisions that contribute to low degrees of central bank independence; the study also recommends specific amendments that would significantly improve said independence in individual countries, the two subsamples, and the entire region.