Monetary Policy and Central Banking in the Middle East and North Africa (Routledge Political Economy of the Middle East and North Africa)

266 Pages·2009·7.88 MB·English

by  David Cobham

Monetary Policy and Central Banking in
the Middle East and North Africa
This book contains new information and fresh analysis of monetary policy, central
banking and exchange rate regimes in the Middle East and North Africa. Part I
covers central banking and monetary policy, while Part II covers monetary policy
and exchange rate regimes. Some chapters cover the whole region – for example,
Gisolo reports an assessment of central bank independence for nearly all the
MENA countries, Schnabl and Schobert investigate the operations of debtor central
banks in the region, Achkar and Shahin examine the effect of exchange rates on
infl ation for each country in the region, and Adam and Cobham estimate the effect
on countries’ trade of alternative exchange rate regimes. Other chapters focus on
individual countries – for example, Dibeh examines the nature and origin of central
bank independence in the Lebanese case (against the background of the region
as a whole), Zouache and Ilmane consider the changing status of the Algerian
central bank, while Boughrara, Boughzala and Moussa analyse the vulnerability
of the Tunisian banking system to shocks under infl ation targeting, and Hatipoglu
and Alper estimate an augmented Taylor rule for Turkey under infl ation targeting.
Rossi proposes an alternative route to monetary integration for MENA countries,
while Bangaké, Desquilbet and Jedlane compare the different types of exchange
rate arrangement open to the Maghreb countries.
David Cobham is Professor of Economics at Heriot-Watt University in Edinburgh,
UK. His main research area is monetary policy, particularly the UK, but he also has
an interest in Middle East economies. He has published papers in Economic Journal,
Oxford Bulletin of Economics and Statistics, World Development, International
Finance and other journals.
Ghassan Dibeh is currently Associate Professor of Economics at the Lebanese
American University in Byblos. He is the editor of Review of Middle East Economics
and Finance. His research interests include macroeconomics, politi cal economy,
fi nancial economics and econophysics. His papers have appeared in Physica
A, Review of Political Economy, Energy Economics, Journal of International
Development and Middle Eastern Studies.
The Routledge Political Economy of the Middle East and North
Africa Series
Series editor: Hassan Hakimian
Senior Lecturer in Economics at Cass Business School, City University, London.
Editorial Board: Jacques Charmes, Professor of Economics and Director of
the Social and Health Sciences Department at L’Institut de Recherche pour le
Développement (IRD), Paris. David Cobham, Professor of Economics at Heriot
Watt University, UK. Nu’man Kanafani, Associate Professor of Economics at
the Department of Economics and Natural Resources, The Royal Veterinary and
Agricultural University, Denmark. Massoud Karshenas, Professor of Economics
at the School of Oriental and African Studies (SOAS), University of London, UK.
Jeffrey B. Nugent, Professor of Economics at the University of Southern California,
Los Angeles, USA. Jennifer Olmsted, Associate Professor of Economics at Drew
University, New Jersey, USA. Karen Pfeifer, Professor of Economics at Smith
College, Northampton, Massachusetts, USA. Wassim Shahin, Professor of
Economics and Dean of the Business School at the Lebanese American University
(LAU), Byblos, Lebanon. Subidey Togan, Professor of Economics and Director of
the Centre for International Economics at Bilkent University, Ankara, Turkey.
1 Trade Policy and Economic 4 Islam and the Everyday World
Integration in the Middle East Public policy dilemmas
and North Africa Edited by Sohrab Behdad and
Economic boundaries in fl ux Farhad Nomani
Edited by Hassan Hakimian and
Jeffrey B. Nugent 5 Monetary Policy and Central
Banking in the Middle East and
2 State Formation in Palestine North Africa
Viability and governance during a Edited by David Cobham and
social transformation Ghassan Dibeh
Edited by Mushtaq Husain Khan
3 Palestinian Labour Migration to
Israel
Land, labour and migration
Leila H. Farsakh
Monetary Policy and Central
Banking in the Middle East
and North Africa
Edited by David Cobham and
Ghassan Dibeh
First published 2009
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York, NY 10016
Routledge is an imprint of the Taylor & Francis Group, an informa business
This edition published in the Taylor & Francis e-Library, 2008.
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collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
© 2009 Editorial selection and matter; David Cobham and Ghassan
Dibeh; individual chapters, the contributors
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Monetary policy and central banking in the Middle East and North Africa
/ edited by David Cobham & Ghassan Dibeh.
p. cm. — (The Routledge political economy of the Middle East and
North Africa series ; 5)
Includes bibliographical references and index.
ISBN 978-0-415-47643-0 (hbk : alk. paper) — ISBN 978-0-203-
88455-3 (ebook) 1. Monetary policy—Middle East. 2. Monetary
policy—Africa, North. 3. Banks and banking, Central—Middle East.
4. Banks and banking, Central—Africa, North. I. Cobham, David P. II.
Dibeh, Ghassan, 1963-
HG1206.M66 2008
339.5’30956—dc22 2008027767
ISBN 0-203-88455-8 Master e-book ISBN
ISBN 10: 0-415-47643-7 (hbk)
ISBN 10: 0-203-88455-8 (ebk)
ISBN 13: 978-0-415-47643-0 (hbk)
ISBN 13: 978-0-203-88455-3 (ebk)
Contents
List of illustrations vii
Notes on contributors x
Preface xiii
1 Introduction 1
DAVID COBHAM AND GHASSAN DIBEH
PART I
Central banking and monetary policy 7
2 The political economy of central banking in the
MENA region with special reference to Lebanon 9
GHASSAN DIBEH
3 The degree of legal central bank independence in MENA
countries
International comparisons and macroeconomic implications 27
ENRICO GISOLO
4 Monetary policy operations of debtor central banks in
MENA countries 66
GUNTHER SCHNABL AND FRANZISKA SCHOBERT
5 Central bank independence in a MENA transition
economy
The experience of Algeria 85
ABDALLAH ZOUACHE AND MOHAMED-CHERIF ILMANE
6 Infl ation targeting and fi nancial fragility in Tunisia 106
ADEL BOUGHRARA, MONGI BOUGHZALA AND HASSOUNA MOUSSA
vi Contents
PART II
Monetary policy and exchange rate regimes 131
7 Alternative exchange rate regimes for MENA countries
Gravity model estimates of the trade effects 133
CHRISTOPHER ADAM AND DAVID COBHAM
8 Exchange rate arrangements and price stability in
MENA countries 168
ELIAS EL-ACHKAR AND WASSIM SHAHIN
9 Exchange rate regimes for small countries
An application to the Maghreb countries 186
CHRYSOST BANGAKÉ, JEAN-BAPTISTE DESQUILBET
AND NABIL JEDLANE
10 Estimating central bank behaviour in emerging
markets
The case of Turkey 210
OZAN HATIPOGLU AND C. EMRE ALPER
11 A common currency for Middle Eastern and North
African countries?
Lessons from the European Monetary Union 226
SERGIO ROSSI
Index 246
Illustrations
Tables
2.1 Ranking of MENA central banks by the Cukierman index of
independence in the 1990s and corresponding TORs 11
2.2 Estimation results for transformed infl ation vs. TOR in MENA
sample 13
2.3 Estimation of the effect of CBI on infl ation in MENA sample 13
2.4 Various measures of CB independence in Lebanon, MENA and
World 14
3.1 Legal central bank provisions in the South Mediterranean
countries
Appendix 3.1 Scores 53
Appendix 3.2 Methodology 59
4.1 Stylised central bank balance sheet 70
6.1 Non-performing loans in Tunisia 111
6.2 Estimates of the behavioural equations 121
6.3 The dynamics of infl ation and NPLs under the two scenarios 122
7.1 Classifi cation of exchange rate regimes 139
7.2 Classifi cation and distribution of exchange rate regimes by
country pair 140
7.3 MENA country exchange rate regimes 142
7.4 The full model with MTRs and CFEs 145
7.5 Baseline trade volumes and shares 2003 149
7.6 Summary of exchange rate experiments 151
7.7 Each country pegs unilaterally to US dollar 160
7.8 Each country pegs unilaterally to euro 161
7.9 Each country unilaterally introduces currency union on US dollar 162
7.10 Each country unilaterally introduces currency union on euro 163
7.11 All countries peg to US dollar 164
7.12 All countries peg to euro 165
7.13 All countries form monetary union pegged to US dollar 166
7.14 All countries form monetary union pegged to euro 167
8.1 Exchange rate arrangements of MENA countries 174
8.2 Exchange rates, money growth and infl ation 176
viii Illustrations
8.3 Macroeconomic variables associated with infl ation 183
9.1 Maghreb exports: Intra-regional and with EU, averages,
1996–2005 188
9.2 Maghreb imports: Intra-regional and with EU, averages,
1996–2005 189
9.3 Evolution of the exchange rate regimes in the Maghreb countries,
1996–2006 190
9.4 Average performance of Maghreb countries under different
regimes 1996–2006 191
10.1 Baseline and extended model estimates 218
11.1 The result of an international settlement for intra-MENA trade 236
11.2 The result of an international settlement for E(M)U–MENA
trade 238
11.3 The result of an international settlement for US–MENA trade 240
Figures
2.1 The growth of credit and money supply in the post-BdL period 16
2.2 The discount rate in Lebanon 1950–1979 16
3.1 Assessment of central bank independence 36
3.2 Assessment of CB independence (weighted) 36
3.3 Comparison between CWN and S (Cyprus, Malta and Israel) 37
3.4 Legal central bank independence: objectives 37
3.5 Legal central bank independence: policy formulation 39
3.6 Legal central bank independence: political autonomy (governor) 40
3.7 Legal central bank independence: political autonomy (board) 41
3.8 Turnover rate of governors (1980–1998) 42
3.9 Legal vs. actual (TOR) political autonomy (dismissal of governor) 43
3.10 Legal central bank independence: economic autonomy 44
3.11 Legal central bank independence: accountability 44
3.12 Syria, Iran, UAE: weighted independence index and its
components 45
3.13 Weighted legal independence index vs. average infl ation
(1996–2005) 47
3.14 Mediterranean: independence indicator, EMG and infl ation
(1996–2005) 47
3.15 Weighted legal independence index vs. average growth
(1996–2005) 48
3.16 Syria, Iran, UAE: weighted independence index vs. growth
(1996–2005) 49
3.17 Syria, Iran, UAE: weighted independence index vs. infl ation
(1981–2005) 49
4.1 Consolidated balance sheet of the Eurosystem (1999–2006) 70
4.2 Central Bank balance sheets: Algeria, Iran, Kuwait, Saudi Arabia 76
4.3 Central Bank balance sheets: Tunisia, Turkey, Egypt, Morocco 77
Illustrations ix
4.4 Central Bank balance sheets: Jordan, Syria, Lebanon, Israel 80
5.1 GDP per capita growth 90
5.2 Infl ation, consumer prices 91
5.3 Infl ation, growth and unemployment 93
5.4 Exchange rate dinar/dollar and dinar/euro 95
6.1 Non-Performing Loans in Tunisia 112
6.2 Actual and targeted monetary growth 113
6.3 Fiscal defi cit in Tunisia 1991–2002 114
6.4 Main interest rates in Tunisia 115
Appendix 6.2 Actual versus fi tted variables: base run 127
7.1 Exchange rate regime coeffi cients 147
10.1 Actual versus fi tted rates 219
10.2 Central bank behaviour 220