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The Effectiveness of Macroeconomic Commitment in Weak(er) Institutional Environments

This paper analyzes the institutional conditions affecting the establishment and effectiveness of independent central banks and of budgetary institutions. It draws on the recent theory developed by North, Wallis and Weingast on the transition from a closed and fragile state to an open economic and political environment. The paper presents a composite indicator allowing for the identification of a country’s position along this transition path. The findings suggest that (i) while the establishment of autonomous central banks seems to be relatively independent from the broader institutional framework, sound budgetary institutions tend to be established in countries with higher levels of rule of law for the elites, and (ii) while central bank independence is effective in reducing inflation irrespective of a country’s position along the transition path, budget institutions seem to be most effective as a disciplining device in weak institutional environments.

... country' s performance under the rule of law for the elites and under perpetual
organizations is linked to the quality of its BI. B. Econometric Analysis In the first
part of the econometric analysis we ask if a country's performance under the
doorstep conditions determines the quality of its MCI as measured by the CBI and
BI indices. In the second part we analyze whether the fulfillment of the three
doorstep conditions has an effect on the impact of MCI on inflation and public
external debt.

Mother, Can I Trust the Government? Sustained Financial Deepening

A Political Institutionsview

Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional environments where governments effectively impose constraints on their own powers in order to create trust. This paper identifies over 200 post-1960 episodes of accelerations in financial development in a large cross-section of countries. We find that the likelihood of an acceleration leading to sustained financial development increases greatly in environments that have high-quality political institutions.

I. INTRODUCTION An old debate in the economics profession centers on
whether financial development leads, follows, or matters at all for economic
growth. Empirical evidence in support of the view that financial development
spurs growth ...