Research In Measuring System Of Independence Of Central Bank And Its Suitability Analysis In China

Central bank independence is a prerequisite for effectively formulating and implementing monetary policy.and it is crucial to the healthy operation of a national and regional economy.The index system on measuring Central Bank Independence is the basis of the study on the central bank independence. With the existing measurement indicator system. Paper measured the independencence of the Central Bank of China from a new angle of view, and did empirical analysis about the relationship between the independencence and inflation and about the moderate range of the independence. Paper proposed a number of recommendations to enhanced the independencence of the Central Bank of China based on the status of the Central Bank of China with suitability analysis of central bank independence in China.There are some limitations about the existing index system on measuring independence, such as the difference between actual operation and legislation, the simpleness on setting the index of independence. the subjectivity in chosen of the measuring indicator. In order to more accurately reflect this stage all of the factors that affect the independence of the level. there is an urgent need to build independence measurement indicator system suited to China’s central bank. Therefore, building our own central bank independencence measuring index system. not only good to provide a theoretical basis for exploring the intrinsic link between independence and macroeconomic, but also help the implementation of the control means and to explore the best optimal path of the independence. Based on this situation, the paper put the institutional structure of central bank as the core of the independence measuring.Have been integrating several measurement indicator system, to some extent, the paper overcome the limitations of previous indicator setting, to extract the indicators which suited to China’s central bank independencence measuring. Specific methods of operation:In accordance with the specific economic developments in China, paper selected more detailed indicators and sets the corresponding clause, then allocated each entry0-1values. Score value of each entry is given with the comprehensive measure of the terms corresponding to the big events in various stages of development of the People’s Bank of China. In the end. paper gets the index of the independencence of the Central Bank of China. So the index can reflect the degree and its changes of independence of the Central Bank of China from different angles of view.What is the technically concrete scope for Central Bank independencence index point? The paper gives the answer through the establishment and use of multiple regression nested models. Based on experiential data from1978to2008. we analyze the appropriate degree of Central Bank independencence comprehensively by some variables of macro-economy, such as income inequality, fixed asset investment. Empirical test finds that there exists an appropriate working range of Central Bank Independence, which is from14.28to20.65. The paper also makes an empirical verification on the relationship between Chinese Central Bank independencence and inflation, which indicates that the two factors have a negative correlation realized by an interaction between Gini Coefficient and the growth rate of fixed asset investment. The concrete features are that:when Central Bank independence index increases one more, the inflation rate will approximately decrease3.54points of percentage. Based on this, the paper puts forwards three policy suggestions:the Central Bank independence should be strengthened to a certain degree, which can be conductive to bringing down the inflation:Gini Coefficient is supposed to be inhibited, and the way of economic growth should be transformed so that the inflation could be suppressed which increasing by an accession of fixed asset investment:the Central Bank independence should be strengthened appropriately during14.28-20.65. which keeps our economy developing steadily.However, there are still some problems on the measurement of Central Bank independencence and other connected issues. In virtue of having distinct performances and impacts in distinct surroundings, it will have new characters in the relationship with economic development. Given the above, the author will make more focus on the issue in the later study and work.The core of measuring the Central Bank independence index is its suitability analysis, which is the sum of the multiple factors associated with the indicators adapt to the central bank independence. The suitability of central bank independence measure indicators has some characteristics:dynamic, multidimensional, heterogeneity and variability. Paper analyses and proposes recommendations from the aspects of economic independence and independence of monetary policy decision-making based on the status of Central Bank of China, to further illustrate the necessity and possibility on moderately enhancing central bank independence in China.