Financial Crises: Impact on Central Bank Independence, Output and Inflation

  • I Kadek Dian Sutrisna Artha

Abstract

The recent financial crisis has spread to the rest of the world. The impact of the financial crisis on economic activity varies widely across countries, reflecting differences in vulnerability to financial crisis, heterogeneity in macroeconomic structures, and differences in policy responses. This dissertation finds that the impact of the current financial crisis on output and unemployment is related to the flexibility of the labor market. Countries with low hiring cost suffered lower output and employment losses due to the recent financial crisis. With respect to central bank independence, financial crises significantly increase the likelihood that a central bank governor will be replaced. This dissertation also finds that the legal and actual independence of Bank Indonesia diverged substantially before it was mandated as an independent institution. Finally, fiscal deficits and debt crises have a positive, significant and homogenous effect on inflation in the long run.

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Publisher

LPEM FEB UI

Institute for Economic and Social Research – Faculty of Economics and Business, University of Ind... more