Nexus Between Financial Innovation And Central Bank Independence: Evidence From Some Selected Oecd Countries

Abstract

This study utilized the static panel estimators (fixed effects and random effects) and the panel quantile regression approach to examine the relationship between central bank independence and its determinants for a sample of 14 OECD countries over the period of 2006 to 2019. Generally, the study suggests that the relationship between central bank independence and financial innovation, as well as the two control variables (commitment towards inflation targeting rule and the rule of law score), is sensitive to the choice of estimators and measures of central bank independence, as was also found out by Agoba et al. (2017). Notwithstanding that the study employed alternative panel estimators, in line with the existing literature, the significant determinants of central bank independence include: financial innovation, inflation gap and observance of the rule of law. Based on the findings, this study recommends, amongst others, that central bankers in the selected OECD should not underestimate the possible influence on their statutory and operational autonomy by way of tracking the developments in financial sector innovation and resolving the areas of conflict with their monetary policy business.