Marco Arnone

The Measurement of Central Bank Autonomy: Survey of Models, Indicators, and Empirical Evidence

This paper presents a survey of the literature on the measurement of central bank autonomy. We distinguish inputs that constitute the building blocks in the literature, and the literature that builds on them. Issues including sensitivity analysis, robustness, and endogeneity are discussed. The review shows that empirical evidence regarding the beneficial effects of central bank autonomy is substantial, although some technical issues still remain for further research. In particular, central bank autonomy raises the issue of subjecting the monetary authorities to democratic control; this calls for additional research on the linkages between central bank autonomy and accountability and transparency. Additional empirical analysis on the relationship between the financial strength of the central bank and its de facto autonomy, and between its autonomy and financial stability, would also be desirable.

Measures of Central Bank Autonomy: Empirical Evidence for OECD, Developing, and Emerging Market Economies

This paper presents an update of the Grilli-Masciandaro-Tabellini (GMT) index of central bank (CB) autonomy, based on CB legislation as of end-2003. The index is applied to a set of OECD and developing countries, and emerging market economies. For a smaller set of countries, the paper presents a reconstruction of the GMT index based on Cukierman (1992) and assesses changes in CB autonomy between 1992 and 2003. The results point to a significant increase in CB autonomy, in particular for developing countries. In most cases, this improvement has involved a three-stage process: an initial stage in which the political foundations for CB autonomy are laid; a second stage in which operational autonomy develops; and a final stage in which CBs gain further political autonomy in terms of policy formulation and the appointment of senior management.

Banking Supervision; Quality and Governance

This paper examines the relationship between the quality of banking supervision and governance of the supervisory agency, based on assessments of the Basel Core Principles and the IMF Code on Transparency in Financial Policies, covering 116 and 53 countries, respectively, with 51 common to both. We find a positive correlation between the transparency of the supervisor and the effectiveness of banking supervision; moreover, better accountability and integrity practices of the banking supervisors are associated with higher independence, which in turn is associated with better compliance with the Basel Core Principles. These results are largely robust to different stages of financial development.

External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

In this paper we stress the limits of the current debt sustainability framework used in the IMF-WB HIPC Initiative and the necessity to include domestic public debt into the analysis. The standard sustainability analysis does not take into account the fully-fledged budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. The switch from foreign to domestic borrowing, and rising domestic real interest rates are likely to undermine the overall sustainability and the success of debt relief programs. This work focuses on the evaluation of public debt sustainability in a simple accounting framework. We use data on external public debt (multilateral and bilateral) and on domestic public debt to underline how the inclusion of domestic debt into the analysis undermines the sustainability target.

International anti‐money laundering programs

Purpose – The purpose of this paper is to present an empirical assessment and outline issues in criminal regulation relating to international anti‐money laundering (AML) programs.Design/methodology/approach – In the first part, this paper outlines the serious threats posed by transnational laundering operations in the context of economic globalization, and calls for highly co‐ordinated international responses to such a crime. The second part of the paper centres on elements of international criminal regulation of ML.Findings – The focus is on the phenomenological aspect of ML and highlights that to a large extent it is an economic issue. Economic analysis calls for an accurate legal response, with typical trade‐offs: it should deter criminals from laundering by increasing the costs for such illicit operations, calling for enhanced regulatory and enforcement activities; however, stronger enforcement yields increased costs and reduces privacy. These features have lately inspired the recent paradigm shift fr...

Primary Dealers in Government Securities: Policy Issues and Selected Countries' Experience

In many countries, authorities have designated a group of financial firms as the principal intermediaries in the government securities market-referred to as primary dealers or a primary dealer system. This paper discusses policy issues related to the establishment of a primary dealer system for countries that may be considering taking this step. In this regard, a key issue is whether a primary dealer system fits into the overall strategy for financial market development in the country. Under a primary dealer system, the debt manager and the group of primary dealers pursue a common strategy in support of the effective functioning and development of primary and secondary markets for government securities. This paper presents results of a survey of country practices conducted in early 2001. Among the countries surveyed, there was broad agreement among authorities that a primary dealer system is to be highly recommended.

Architecture of Financial Supervisory Authorities and the Basel Core Principles

This paper analyses theoretically and empirically the architecture of supervisory powers, including the role of the central bank and the degree of integration of banking supervision with the supervision of securities and insurance companies. We focus on results on Basel Core Principles compliance to evaluate the association between the quality of banking supervision and the organisation of supervisory powers. The dichotomy between central bank involvement and the level of unification of supervisory powers is confirmed inside our 116 countries sample. We find a positive association between BCP compliance and integration of supervisory powers, and statistically significant findings arise in favour of placing banking supervision inside the central bank.

International Anti-Money Laundering Programs- Empirical Assessment and Issues in CriminalRegulation

The purpose of this paper is to present an empirical assessment and outline issues in criminal regulation relating to international anti-money laundering (AML) programs. Design/methodology/approach – In the first part, this paper outlines the serious threats posed by transnational laundering operations in the context of economic globalization, and calls for highly co-ordinated international responses to such a crime. The second part of the paper centres on elements of international criminal regulation of ML. The focus is on the phenomenological aspect of ML and highlights that to a large extent it is an economic issue. Economic analysis calls for an accurate legal response, with typical trade-offs: it should deter criminals from laundering by increasing the costs for such illicit operations, calling for enhanced regulatory and enforcement activities; however, stronger enforcement yields increased costs and reduces privacy. These features have lately inspired the recent paradigm shift from a rule-based regulatory framework to a risk-based approach which still represents an extremely delicate regulatory. Both at the international level and within the single domestic legal system, AML law is typically characterised by a multidisciplinary approach combining the repressive profile with preventive mechanisms: an empirical evaluation of the International Monetary Fund-World Bank AML program is presented, where these two aspects are assessed. The non-criminal measures recently implemented under the auspices of the main inter-governmental public organisations with competence in these fields seem to be consistent with the insights of economic analysis. However, some key criminal issues need to be better addressed.

Debt Sustainability Framework in Hipcs: A Critical Assessment and Suggested Improvements

This paper presents an assessment of the external debt literature related to the IMF-World Bank HIPC Initiative and proposes to extend the present debt sustainability framework. We argue that a comprehensive debt sustainability analysis requires a fully-fledged government budget constraint, which includes not only the external position, but also public domestic debt and the feedback effects of the choices on deficit financing. We also suggest to consider uncertainty and the risk of default, to carefully evaluate the resource required to finance poverty reduction policies, and to develop a legal framework to deal with private creditors. As a result, debt relief should be tailored on specific country needs and it should be part of a more comprehensive development policy, aimed at reducing poverty, built on the fully-fledged government budget constraint and designed for providing a permanent exit from debt dependence and an incentive to strengthen institutions and policies.

Microfinance institutions in Africa, Asia, and Latin America: an empirical analysis of operational efficiency, institutional context and costs

This paper presents an empirical analysis of the operational efficiency of microfinance institutions. Using a cross section of 750 microfinance institutions operating in Asia, Latin America and Sub-Saharan Africa, the analysis shows that operating costs and efficiency are negatively related. More specifically, operating costs are lower when institutions are more focused on traditional financial aspects of commercial banking, thereby improving their efficiency, and enhancing the development of the sector and the quality of offered services. Successively, the study takes into consideration how these above described relationships are declined in different geographical areas. Additional explanations to the observed outcome highlight the importance of different legal and institutional frameworks and of features of macro-governance.