Do financial markets allow the independence of Central Banks?
DOI:
https://doi.org/10.32826/reyf.v1i1.337Keywords:
Central banks, financial markets, monetary policy, forecasting and simulation, financial econometrics, business cycles, cointegration, co-integrated vector error correction model (VEC)Abstract
The research work presented below addresses the possible concern of Central Bank independence through the development and application of econometric models. The complexity of the modeling has allowed going a step further in corroborating that financial independence is not only linked to the appointments and pressures of the states regarding their economic policy but also the role that financial markets play by acting as a force that dictates and contaminates the decisions of the Central Banks. In this sense, the paper proposes a theoretical basis for recommendations on applying the new monetary policy in a more complex environment, both due to the pandemic sweeping the world and the bulky debt that countries are carrying. The paper concludes with a series of measures and advice that could be addressed by monetary policymakers given the necessary, but not easy "normalization" of monetary policy required at the global level.
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