Measuring Central Bank Independence (CBI) Within Pakistan's Economic Landscape

Abstract

Debate on central bank independence and its association with economic performance in developed and developing nations has attracted the attention of economist and policy makers, in order to achieve macroeconomic performance and financial stability in the economy. The developed nation has been experiencing the independence of Central Bank and this independence has improved macro-economic condition, but as far as developing nations are concerned, they have been suffering from lack of independence, therefore the first question is to measure the independence of central bank i.e. State Bank of Pakistan. Central Bank Independence index is constructed on the basis of characteristics used in prior literature; two attributes are taken to construct index on Pakistan i.e monetary policy independence and political independence. An overall score found through which it could be said that there is a very low degree of independence given to central bank of Pakistan.