BUDGET DEFICITS, MONETIZATION, AND CENTRAL-BANK INDEPENDENCE IN DEVELOPING-COUNTRIES

Using various indicators for central bank independence we examine the relationship between central bank independence and government budget d eficits. Using a two-stage procedure we also analyze whether central b ank independence affects the monetization of deficits. First, the mone tization relation in each country is estimated and then the resulting accommodation coefficients are related to central bank independence. W e conclude that only if the turnover rate of central bank governors or the political vulnerability index is used monetary accommodation of d eficits is negatively related to central bank independence. There is n o relationship between independence and the level of budget deficits.