Publication: Finansal piyasalar ve merkez bankacılığı
Abstract
GİRİŞ 1970'lerden itibaren finansal piyasaların dünya pazarlarında ağırlıklarının artması ile birlikte ekonominin stabilizasyonu ve dolayısıyla fiyat istikrarının sağlanması büyük önem taşımaya başlamıştır. Bu açıdan bakıldığında ülke ekonomisinde para arzının kontrolü noktasında Merkez Bankası'nın finansal piyasalarda üstlenmesi gereken rol ve politika ile ilişkileri en önemli tartışma konularından biri olmuştur. Bu çalışmanın amacı bir ekonomide Merkez Bankası bağımsızlığının diğer makroekonomik verileri ne ölçüde ve hangi yönde etkilediğini incelemektir. İkinci bölümde gelişmekte olan finansal piyasalar üzerinde durulmuş ve finansal hizmetler sektörünün gelişimi ile birlikte ülkedeki para politikasının en önemli uygulayıcısı olarak Merkez Bankası'nın ekonomide artan rolünden bahsedilmiştir. Bu bağlamda finansal sektörü üç bölümde incelemek mümkündür: Bunlar; para ve sermaye piyasaları; ticari bankalarla birlikte diğer para ve sermaye piyasası kurumları ve bu piyasalarda kullanılan araçlardır. Üçüncü bölümde finansal piyasalarda Merkez Bankalarının yeri ve önemi konusu ele alınmış ve bu konuda tüm Merkez Bankalarının sahip oldukları genel fonksiyonlar, özel fonksiyonlar ve Merkez Bankalarının faaliyet alanı dışında kalan konular incelenmiştir. Merkez Bankalarının genel fonksiyonları konusunda makroekonomik verilerdeki karşılıklı ilişkilerle birlikte Merkez Bankası tarafından yürütülen para politikasının amaçları ve ekonomiye etkileri; bunun yanında ödemeler sistemi ile finansal stabilizasyonun sağlanması konuları ele alınmıştır. Bu noktada, Merkez Bankası'nın Hazine ile olan ilişkileri üzerinde durulmuştur. Dördüncü bölüm, genel olarak Merkez Bankası bağımsızlığı konusunu ele almaktadır. Bu bölümde Merkez Bankası bağımsızlığının tanımı yapılırken, Merkez Bankalarının kurumsal, fonksiyonel ve finansal bağımsızlığı üzerinde durulmuştur. Bu bağlamda dördüncü bölüm yedi alt başlıktan oluşmaktadır. Bunlar; politika ve ekonomi açısından Merkez Bankası bağımsızlığının değerlendirilmesi, bağımsızlığı etkileyen faktörler ile bağımsızlığın sonuçları, Merkez Bankası bağımsızlığının ölçülmesi, bağımsızlık açısından Türkiye Cumhuriyeti Merkez Bankası bağımsızlığının değerlendirilmesi ile dünyada bağımsızlık konusunda örnek olabilecek Almanya Merkez Bankası (Bundesbank) ile İngiltere Merkez Bankası konularıdır. Dördüncü bölüm ilk kısımda siyasi açıdan Merkez Bankası bağımsızlığı ele alınırken, Merkez Bankası ile devlet arasındaki ilişki önem kazanmaktadır. Aynı zamanda demokrasi yönetimi ile Merkez Bankası ilişkisi üzerinde var olan karşıt iki görüş üzerinde durulmuştur. Dördüncü bölümün ikinci kısmında ise ekonomi açısından Merkez Bankası bağımsızlığı değerlendirilmiş; bu bağlamda enflasyon, ekonomik büyüme ve işsizlik makroverileri üzerinde Merkez Bankası'nın bağımsızlığının etkisi üzerinde durulmuştur. İşsizlik konusunda genelde enflasyon oranını düşürmek için kullanılan sıkı para politikasının sosyal sonuçları ve yaşam standartlarını ne ölçüde etkilediği konusu ele alınmıştır. Dördüncü bölümün üçüncü kısmında bağımsızlığı etkileyen faktörler ele alınmıştır. Merkez Bankası Kanununun ve ilgili diğer kanunların Merkez Bankası'na verdiği yetkiler yasal prodesür başlığı altında incelenmiştir. Merkez Bankası başkanının görev süresinin uzun olması ise ekonomide sürekliliği ve bir ölçüde politikadan bağımsız hareket etmeyi beraberinde getirdiği için bağımsızlığın sağlanması açısından önemli bir konudur. Bu açıdan ayrı bir başlık altında Merkez Bankası Başkanının (guvernörün) görev süresi üzerinde durulmuştur. Merkez Bankası yönetimi de bağımsızlığın sağlanması açısından önem taşıyan bir diğer konudur. Bu bölümde Merkez Bankasının idari yapısı ele alınmıştır. Bağımsızlığın gerçekleştirilmesinde bir diğer faktör ise toplumsal desteğin sağlanması noktasındadır. Mükemmel işleyen yasal bir alt yapı ve Kanunlarla kendisine tam bağımsızlık verilmiş bir Merkez Bankası toplumsal desteği arkasına almadan hiçbir politikasını tam anlamıyla yerine getiremeyecektir. Bağımsızlığı etkileyen önemli diğer bir faktör de bir ekonomide Merkez Bankası'nın para politikası konusunda aldığı kararları en çok zorlayan bütçe açığı ve yüksek enflasyon oranlarıdır. Bütçe açığı ve enflasyon aynı zamanda siyasi otoritelerin ve politik çıkar gruplarının Merkez Bankası politikalarına müdahale ihtimalini de oldukça artırmaktadır. Dördüncü bölümün dördüncü kısmında bağımsızlığın sonuçları üzerinde durulmuştur. Bağımsız Merkez Bankası ekonomide kredibiliteyi artıran bir unsurdur. Bağımsızlık ile ekonomik büyüme arasındaki ilişki her ülkede farklı olmasına rağmen burada genel kanı fiyat istikrarının sağlanması durumunda ekonomik büyümenin de olumlu yönde etkileneceğidir. Bağımsızlık ile enflasyon oranı arasında mükemmele yakın bir ilişki sözkonusudur. Para arzını kontrol eden Merkez Bankasının dolayısıyla bankacılık sektörünün kontrolünü de elinde tuttuğu söylenebilir. Burada en önemli konu bankacılık sektörüne sağlanan güvencedir. Güvencenin sağlanması noktasında ise yine Merkez Bankası ile devlet arasındaki ilişki incelenmektedir. Para politikasını uygularken Merkez Bankası paranın sadece iç değerini belirlemekle kalmayıp, uluslararası değerini de etkileme şansına sahiptir. Uluslararası etkileri başlığı altında para politikası ile döviz kuru politikası arasındaki ilişkiler incelenmektedir. Dördüncü bölümün beşinci kısmında Merkez Bankası bağımsızlığının ölçülmesi konusu ele alınmıştır. Bu konuda en önemli çalışma Alex Cukierman tarafından yapılmış olup, Cukierman'ın çalışmasına geniş yer verilmiştir. Değişik ülke Merkez Bankaları bağımsızlık verileri ile diğer makroveriler arasındaki ilişkiler kurulmuş; buradan genel makro sonuçlara ulaşılmıştır. Dördüncü bölümün altıncı kısmında ise Türkiye Cumhuriyeti Merkez Bankası bağımsızlık açısından incelenmiştir. Türkiye Cumhuriyeti Merkez Bankası Kanunu'ndan hareketle Bankanın yönetimi, görev ve yetkileri ile sermaye ve idari yapısı hakkında yorumlar yapılmıştır. Bu noktada T.C. Merkez Bankası'nın bağımsızlığı konusu tartışılmış, aynı zamanda Alex Cukierman'ın çalışması T.C. Merkez Bankası'na uyarlanmıştır. Sonuç olarak Türkiye Cumhuriyeti Merkez Bankası'nın bağımsızlık yolunda aşması gereken bazı sorunlar ele alınmıştır. Burada 1980 sonrası değişik Merkez Bankası başkanları döneminde Türkiye ekonomisi makroverileri incelenmiştir. Aynı zamanda en önemli sorunlar olarak yetki kargaşası ve T.C. Merkez Bankası politikalarının Hazine aracılığı ile hükümetin önemli ölçüde müdahalesine maruz kaldığı noktasına dikkat çekilmiştir. Merkez Bankası başkanının görev süresinin politik müdahalelerden dolayı kısa oluşu da T.C. Merkez Bankası bağımsızlığının sağlanmasında bir diğer engel olarak görülmektedir. Dördüncü bölümün yedinci kısmında ise dünyada bağımsızlık konusunda örnek teşkil edebilecek olan Almanya Merkez Bankası (Bundesbank) ile İngiltere Merkez Bankası'nın bağımsızlık yolunda geçirmiş oldukları evreler ile bağımsızlıklarının nedenleri üzerinde durulmaktadır.
With the improvement of financial markets within the world economy, the role of stability of the economy and prices is increasing worldwide. From this point of view, the control of money supply within the economy has become a strategic decision and therefore the role of Central Bank in financial markets and its relationship with political authorities have great importance for the economies. The aim of this paper is to investigate the relation between Central Bank independence and other macroeconomic variables that are important for the stability of the economy and in what degree the Central Bank independence affects the other macroeconomic variables. The place and the importance of Central Banks in financial markets are the scope of this thesis. Some of the functions of Central Banks are introduced below: - The decision of monetary policy, - Balance of payments, - The relation with Treasury and; - The financial stability. The Decision of Monetary Policy: The main tools are monetary and fiscal policy within the hands of governments in order to stabilize the economy. From the point of the determination of monetary policy, the targets of monetary policy applied by Central Banks and in order to reach these aims, the tools used by Central Banks are investigated. The former one, in other words the target determination is called political independence where the latter one that is the tool determination is called economic independence. Balance of Payments: It is difficult to support the idea that there is the Central Bank independence in the country where the government controls the exchange rates. In the short and the long run, the money supply and exchange rates are not independent variables. Therefore, in the case of the control of exchange rates and the control of money supply determined by different policy makers result with the confliction of the targets of both policies. This confliction causes the inefficiency of exchange rate and money market policy since one policy applied for exchange rates is contrary to one that applied for money market or vice versa. The Relation with Treasury: Fiscal authorities when they have greater expenditures than revenues have financed themselves by increasing the money supply. This situation causes a pressure on Central Bank that controls the money supply. The Financial Stability: The main purpose of Central Banks is to provide the value of its own currency within the domestic markets as well as in international markets. In order to achieve this stability, the stability of the general economy is important. The Central Bank which provides the financial stability also provides the price stability in a manner. CENTRAL BANK INDEPENDENCE Recently, there are two reasons in the tendency of giving more authority to Central Banks. First, the more independent Central Banks (like Bundesbank, Switzerland Central Bank) are good at achieving the price stability and second, the role of public sector in developing contries is to be investigated by 1970's when high rates of inflation are on the agenda. Baka investigated the Central Bank independence in 3 subgroups: - Institutional independence - Functional independence - Financial independence The Central Bank independence can be categorized into two groups. One is the political independence and the other is economic one. From political perspective, the relation with Central Bank and the State and the relation with Central Bank and democracy are investigated. Examining the role of Central Bank and the State relationship, it can be observed that the creation of the value of money is important. The State which enables and provides the credibility of value of money intervenes the money market policies frequently in order to sustain its power on its own hands. This situation causes the inefficiency of Central Bank independence due to interventions made by the State. In Central Bank and democracy relationship, there are two different views: First, it is the biggest obstacle to democracy that the right of preference on economic decisions is given to an independent group of people who affects the whole economic lives of citizens who do not have any right of vote for the selection of Central Bank guvernor. In general the Central Bank guvernor and its upper bureacratic group are selected by the Board of Directors who are mainly the selected bankers. In order not the money market policy to worsen the democratic regimes; the money market policies should cause narrow results. That means while the money market policy affects the stability of prices and financial system, it does not have social results like unemployment and worsening the quality of life. There are two groups of economists on this subject. One group of economists supports the idea that all the people have full information about economic activities and direct their economic decision according to their expectations about economic variables. Thus, this adjustment process made by all economic actors does not cause any unemployment changes in the economy. The other group of economists supports the opposite, that is, all the people have not full information about economic variables or get the information later, then, in this period, there arises economic distortions causing unemployment. At this point, the view of constitutional economists is presented. They support the idea that constitutional arrangements should be made on economic activities in order to minimize the political pressure on Central Bank and in order not the money market policies to affect large amount of peoples economic lives. Therefore, thanks to this kind of an application, the accurate prediction of changes on economic variables can be achieved in a manner. Inflation: The low rate of inflation is preferred in most economies. Because low rate of inflation provides a better coordination of capital and labor, a better income distribution and therefore minimizes the economic uncertanity. Accelaration of Central Bank credibility and its achievement on providing low rates of inflation are related with Central Bank independence. Bade-Parkin (1987) and Alesina (1988) have worked on this issue. The result of these studies is that the higher the Central Bank independence the lower the rate of inflation. But there are also some exceptions. For example, while Japanese economy has a dependent Central Bank, the rate of inflation is quite low. Its success is based on the high credibility for Central Bank and the trustiness of fiscal authorities to Central Bank. Economic Growth: In general perspective, the policies decreasing the rate of inflation, cause the slowdown of economy in economic theory. But the relation with Central Bank independence and economic growth is not clear-cut. The Central Bank out of political pressures promotes economic stability, decreases the interest rates and therefore contributes to the economic growth. It can be asserted that in the short run, since the economic actors cannot adapt themselves to the changes in prices, the rate of unemployment increases. In the long run, it is supported that the money market policy has not an effect on unemployment. On the subject of relation with money market policy and social results, the high rate of unemployment causes social problems. The results are the worsening of income distribution, the increase in the rate of crime, the decrease in literacy and social alienation. The factors that affect the Central Bank independence are presented below: - Legal procedure - Turnover rate of Central Bank guvernor - Executive - Social support - Budget deficit and inflation The results of Central Bank independence are as: - Credibility - Economic growth - Inflation - The control of banking sector - International consequences MEASURING CENTRAL BANK INDEPENDENCE Alberto Alesina studied the Central Bank independence by analysing countries whose Central Banks have different institutional arrangements. Four variables are included in this study: - The institutional and formal relationships between the Bank and the Executive - Informal relationships and contacts between Central Bankers and members of the Executive - Budgetary and financial relationships between the Central Bank and the Executive - Macroeconomic relationships, such as the existence of rules focusing the Central Bank to accommodate fiscal policy Sixteen countries are included in this analysis. (1973-1985) The conclusion of his analysis is that there is an inverse relationship between the degree of independence of Central Banks and the average inflation rate. Another study is done by Grilli, Masciandaro and Tabellini by comparing the monetary regimes of 18 countries. The political independence of the Central Bank is primarily determined by the listed aspects of a monetray regime. - The procedure for appointing the Members of the Central Bank governing bodies - Whether a government approval of monetary policy formulation is required - Whether there are statuary requirements that Central Bank pursues monetary stability among its goals - Whether there are legal provisions to strenghten the Central Bank's position in conflicts with the Government. The economic independence of the Central Bank is the autonomy of the Bank in choosing the instruments of monetary policy described as; - The influence of the government in determining how much to borrow from Central Bank - The nature of the monetary instruments under the control of the Central Bank The result is that the indicator of economic independence is significant in the periods of high inflation (1980-1989) while the indicator of political independence is significant only in the 1970's. Alex Cukierman's work is different from those above mentioned in two ways. First, his study includes the informal arrangements as well as formal arrangements. Another aspect that distinguishes Alex Cukierman's workshop from the others is that the analysis is not limited to the developed countries but covers a wide range of countries including the less developed countries. Variables are: - Legal independence - Turnover of Central Bank guvernor - The role of Central Bank on determining money market policy The result is that even when the law is quite explicit, the real application is deviated from the real application. A striking example is Argentina in which the legal term of office of the guvernor is four years. The actual term of office of the guvernor in Argentina during 1980's was about 10 months. For measuring of deviations from legal procedure, Cukierman prepared a questionnaire on 24 countries including the term between 1980-1989 and got the index from these data. Alberto Alesina and Lawrance Summers (1993) tried to find out the correlation between the index of Central Bank independence and other macroeconomic variables. CENTRAL BANK OF THE REPUBLIC OF TURKEY Central Bank of Turkey began its operations on 3rd October 1931 by the law with no 1715 and dated 30th June 1930. The Central Bank of Turkey is a unique institution that has the privilige of issuing banknotes and is established in the form of a joint stock company. The Law with no 1715 has been changed 22 times until 1970 when the Law with no 1211 was accepted. Every change in the Law causes the divergence from the independence. The regulation, that the relation between Treasury and Central Bank has been rearranged in 5th April 1994, is not sufficient for providing the independence. The problems of Central Bank of Republic of Turkey in terms of independence are: The problem of authority: The convergence of Treasury and Foreign Trade in one body and forming an independent authority cause the confliction of authorities in 1983. Even it can be claimed that the Central Bank has no authority of regulating the interest rates and controlling the money market policy. The change in capital composition: The capital share of Treasury that it can be owned has changed from 15% to 51% by the Law with no 1211. This change causes the detoriation of independence of Central Bank. The problem of short term advances made by Central Bank to Treasury: Treasury can finance its deficit by obtaining the funds from Central Bank under the name of short term advances which was restricted by the amount of 15% of the previous year budget until 1994. With 1994 regulation, it was decided that this ratio would decrease to 10% by the end of 1996, 6% by the end of 1997 and 3% by 1998 and later. Although these can be seen as improvements, they are not sufficient for independence. The term of length: Although according to Law with no 1211, the guvernor shall be appointed for a term of five years by a Decree of the Council of Ministers, the average term of office is less than 2,5 years in reality. This situation causes the incontinuity of the policies and affects the independence of Central Bank negatively. The confliction of policy goals: It is indicated in the law with no 1211 that the aim of the Bank is to stabilize the prices according to Article 4. At the same time in the first portion of the same Article, the aim is indicated as contributing to the development of the economy. These are as can be easily seen, two opposite policy goals that one authority can not handle with. THE BUNDESBANK In terms of high independence, the Bundesbank, Switzerland Central Bank and Central Bank of England are the good examples in the world. Deutche Bundesbank was established in 1957. The only target of Bundesbank is the price stability. Since the German economy experienced an hyperinflation period in its past, the social support and trustiness to Bank's policies are quite high. Bundesbank targeted the monetary aggregates in 1974. The Executive body of the Bank has been selected by the Federal Government. Although this seems that it is an obstacle for independence, it is not. Because, the term of a member is as double as the term of government. The exchange rate policy was also determined by the Foreign Trade Law, a different regulation. But, these authorities also highly trusted in Central Bank policies and got advice from Central Bank. It can be also seen as an advantage that the Bundesbank is placed in Frankfurt, while the center of government is in Bonn. CENTRAL BANK OF ENGLAND English authorities provide the operational independence to the Central Bank. The Central Bank applied the monetary targets in 1980's and exchange rate target in 1990's both of which are resulted in failure. In 1992, a new type of policy was applied, that is the target of inflation rate. In order to provide the support from financial authorities and public the Central Bank announced these targets in 3 month period in order to increase the transperancy in the markets. The Monetary Market Committee has started the determination of the inflation and interest rate targets together.
With the improvement of financial markets within the world economy, the role of stability of the economy and prices is increasing worldwide. From this point of view, the control of money supply within the economy has become a strategic decision and therefore the role of Central Bank in financial markets and its relationship with political authorities have great importance for the economies. The aim of this paper is to investigate the relation between Central Bank independence and other macroeconomic variables that are important for the stability of the economy and in what degree the Central Bank independence affects the other macroeconomic variables. The place and the importance of Central Banks in financial markets are the scope of this thesis. Some of the functions of Central Banks are introduced below: - The decision of monetary policy, - Balance of payments, - The relation with Treasury and; - The financial stability. The Decision of Monetary Policy: The main tools are monetary and fiscal policy within the hands of governments in order to stabilize the economy. From the point of the determination of monetary policy, the targets of monetary policy applied by Central Banks and in order to reach these aims, the tools used by Central Banks are investigated. The former one, in other words the target determination is called political independence where the latter one that is the tool determination is called economic independence. Balance of Payments: It is difficult to support the idea that there is the Central Bank independence in the country where the government controls the exchange rates. In the short and the long run, the money supply and exchange rates are not independent variables. Therefore, in the case of the control of exchange rates and the control of money supply determined by different policy makers result with the confliction of the targets of both policies. This confliction causes the inefficiency of exchange rate and money market policy since one policy applied for exchange rates is contrary to one that applied for money market or vice versa. The Relation with Treasury: Fiscal authorities when they have greater expenditures than revenues have financed themselves by increasing the money supply. This situation causes a pressure on Central Bank that controls the money supply. The Financial Stability: The main purpose of Central Banks is to provide the value of its own currency within the domestic markets as well as in international markets. In order to achieve this stability, the stability of the general economy is important. The Central Bank which provides the financial stability also provides the price stability in a manner. CENTRAL BANK INDEPENDENCE Recently, there are two reasons in the tendency of giving more authority to Central Banks. First, the more independent Central Banks (like Bundesbank, Switzerland Central Bank) are good at achieving the price stability and second, the role of public sector in developing contries is to be investigated by 1970's when high rates of inflation are on the agenda. Baka investigated the Central Bank independence in 3 subgroups: - Institutional independence - Functional independence - Financial independence The Central Bank independence can be categorized into two groups. One is the political independence and the other is economic one. From political perspective, the relation with Central Bank and the State and the relation with Central Bank and democracy are investigated. Examining the role of Central Bank and the State relationship, it can be observed that the creation of the value of money is important. The State which enables and provides the credibility of value of money intervenes the money market policies frequently in order to sustain its power on its own hands. This situation causes the inefficiency of Central Bank independence due to interventions made by the State. In Central Bank and democracy relationship, there are two different views: First, it is the biggest obstacle to democracy that the right of preference on economic decisions is given to an independent group of people who affects the whole economic lives of citizens who do not have any right of vote for the selection of Central Bank guvernor. In general the Central Bank guvernor and its upper bureacratic group are selected by the Board of Directors who are mainly the selected bankers. In order not the money market policy to worsen the democratic regimes; the money market policies should cause narrow results. That means while the money market policy affects the stability of prices and financial system, it does not have social results like unemployment and worsening the quality of life. There are two groups of economists on this subject. One group of economists supports the idea that all the people have full information about economic activities and direct their economic decision according to their expectations about economic variables. Thus, this adjustment process made by all economic actors does not cause any unemployment changes in the economy. The other group of economists supports the opposite, that is, all the people have not full information about economic variables or get the information later, then, in this period, there arises economic distortions causing unemployment. At this point, the view of constitutional economists is presented. They support the idea that constitutional arrangements should be made on economic activities in order to minimize the political pressure on Central Bank and in order not the money market policies to affect large amount of peoples economic lives. Therefore, thanks to this kind of an application, the accurate prediction of changes on economic variables can be achieved in a manner. Inflation: The low rate of inflation is preferred in most economies. Because low rate of inflation provides a better coordination of capital and labor, a better income distribution and therefore minimizes the economic uncertanity. Accelaration of Central Bank credibility and its achievement on providing low rates of inflation are related with Central Bank independence. Bade-Parkin (1987) and Alesina (1988) have worked on this issue. The result of these studies is that the higher the Central Bank independence the lower the rate of inflation. But there are also some exceptions. For example, while Japanese economy has a dependent Central Bank, the rate of inflation is quite low. Its success is based on the high credibility for Central Bank and the trustiness of fiscal authorities to Central Bank. Economic Growth: In general perspective, the policies decreasing the rate of inflation, cause the slowdown of economy in economic theory. But the relation with Central Bank independence and economic growth is not clear-cut. The Central Bank out of political pressures promotes economic stability, decreases the interest rates and therefore contributes to the economic growth. It can be asserted that in the short run, since the economic actors cannot adapt themselves to the changes in prices, the rate of unemployment increases. In the long run, it is supported that the money market policy has not an effect on unemployment. On the subject of relation with money market policy and social results, the high rate of unemployment causes social problems. The results are the worsening of income distribution, the increase in the rate of crime, the decrease in literacy and social alienation. The factors that affect the Central Bank independence are presented below: - Legal procedure - Turnover rate of Central Bank guvernor - Executive - Social support - Budget deficit and inflation The results of Central Bank independence are as: - Credibility - Economic growth - Inflation - The control of banking sector - International consequences MEASURING CENTRAL BANK INDEPENDENCE Alberto Alesina studied the Central Bank independence by analysing countries whose Central Banks have different institutional arrangements. Four variables are included in this study: - The institutional and formal relationships between the Bank and the Executive - Informal relationships and contacts between Central Bankers and members of the Executive - Budgetary and financial relationships between the Central Bank and the Executive - Macroeconomic relationships, such as the existence of rules focusing the Central Bank to accommodate fiscal policy Sixteen countries are included in this analysis. (1973-1985) The conclusion of his analysis is that there is an inverse relationship between the degree of independence of Central Banks and the average inflation rate. Another study is done by Grilli, Masciandaro and Tabellini by comparing the monetary regimes of 18 countries. The political independence of the Central Bank is primarily determined by the listed aspects of a monetray regime. - The procedure for appointing the Members of the Central Bank governing bodies - Whether a government approval of monetary policy formulation is required - Whether there are statuary requirements that Central Bank pursues monetary stability among its goals - Whether there are legal provisions to strenghten the Central Bank's position in conflicts with the Government. The economic independence of the Central Bank is the autonomy of the Bank in choosing the instruments of monetary policy described as; - The influence of the government in determining how much to borrow from Central Bank - The nature of the monetary instruments under the control of the Central Bank The result is that the indicator of economic independence is significant in the periods of high inflation (1980-1989) while the indicator of political independence is significant only in the 1970's. Alex Cukierman's work is different from those above mentioned in two ways. First, his study includes the informal arrangements as well as formal arrangements. Another aspect that distinguishes Alex Cukierman's workshop from the others is that the analysis is not limited to the developed countries but covers a wide range of countries including the less developed countries. Variables are: - Legal independence - Turnover of Central Bank guvernor - The role of Central Bank on determining money market policy The result is that even when the law is quite explicit, the real application is deviated from the real application. A striking example is Argentina in which the legal term of office of the guvernor is four years. The actual term of office of the guvernor in Argentina during 1980's was about 10 months. For measuring of deviations from legal procedure, Cukierman prepared a questionnaire on 24 countries including the term between 1980-1989 and got the index from these data. Alberto Alesina and Lawrance Summers (1993) tried to find out the correlation between the index of Central Bank independence and other macroeconomic variables. CENTRAL BANK OF THE REPUBLIC OF TURKEY Central Bank of Turkey began its operations on 3rd October 1931 by the law with no 1715 and dated 30th June 1930. The Central Bank of Turkey is a unique institution that has the privilige of issuing banknotes and is established in the form of a joint stock company. The Law with no 1715 has been changed 22 times until 1970 when the Law with no 1211 was accepted. Every change in the Law causes the divergence from the independence. The regulation, that the relation between Treasury and Central Bank has been rearranged in 5th April 1994, is not sufficient for providing the independence. The problems of Central Bank of Republic of Turkey in terms of independence are: The problem of authority: The convergence of Treasury and Foreign Trade in one body and forming an independent authority cause the confliction of authorities in 1983. Even it can be claimed that the Central Bank has no authority of regulating the interest rates and controlling the money market policy. The change in capital composition: The capital share of Treasury that it can be owned has changed from 15% to 51% by the Law with no 1211. This change causes the detoriation of independence of Central Bank. The problem of short term advances made by Central Bank to Treasury: Treasury can finance its deficit by obtaining the funds from Central Bank under the name of short term advances which was restricted by the amount of 15% of the previous year budget until 1994. With 1994 regulation, it was decided that this ratio would decrease to 10% by the end of 1996, 6% by the end of 1997 and 3% by 1998 and later. Although these can be seen as improvements, they are not sufficient for independence. The term of length: Although according to Law with no 1211, the guvernor shall be appointed for a term of five years by a Decree of the Council of Ministers, the average term of office is less than 2,5 years in reality. This situation causes the incontinuity of the policies and affects the independence of Central Bank negatively. The confliction of policy goals: It is indicated in the law with no 1211 that the aim of the Bank is to stabilize the prices according to Article 4. At the same time in the first portion of the same Article, the aim is indicated as contributing to the development of the economy. These are as can be easily seen, two opposite policy goals that one authority can not handle with. THE BUNDESBANK In terms of high independence, the Bundesbank, Switzerland Central Bank and Central Bank of England are the good examples in the world. Deutche Bundesbank was established in 1957. The only target of Bundesbank is the price stability. Since the German economy experienced an hyperinflation period in its past, the social support and trustiness to Bank's policies are quite high. Bundesbank targeted the monetary aggregates in 1974. The Executive body of the Bank has been selected by the Federal Government. Although this seems that it is an obstacle for independence, it is not. Because, the term of a member is as double as the term of government. The exchange rate policy was also determined by the Foreign Trade Law, a different regulation. But, these authorities also highly trusted in Central Bank policies and got advice from Central Bank. It can be also seen as an advantage that the Bundesbank is placed in Frankfurt, while the center of government is in Bonn. CENTRAL BANK OF ENGLAND English authorities provide the operational independence to the Central Bank. The Central Bank applied the monetary targets in 1980's and exchange rate target in 1990's both of which are resulted in failure. In 1992, a new type of policy was applied, that is the target of inflation rate. In order to provide the support from financial authorities and public the Central Bank announced these targets in 3 month period in order to increase the transperancy in the markets. The Monetary Market Committee has started the determination of the inflation and interest rate targets together.