Rei Sustainability Case

To: Council of Executive Vice Presidents Date: 1th of November, 2012 From: Anders F? dder Subject: Evaluation of REI’s sustainability goals I am writing in response to your inquiry regarding the plausibility of maintaining the continuous growth of the company as well as satisfying its sustainability goals. The following sections will address the three issues, mentioned by top management, by first describing them, then interpreting them and lastly they will be evaluated.Conclusion and recommendations will be based on this. REI focus greatly on the impact that their business has on the environment. They continuously work on finding new and innovative solution that will help reduce these negative effects. Their corporate mission emphasises this commitment: â€Å"At REI, we inspire, educate and outfit for a lifetime of outdoor adventure and stewardship† REI’s stewardship priorities: * Encourage the active conservation of nature Inspire the responsible use and enjoyme nt of the outdoors * Enhance the natural world and our communities through responsible business practices * Foster opportunities to increase participation in human-powered outdoor recreation * Maintain REI as an employer of choice, where employees are highly engaged in the vision of the company and are representative of our communities The CEO, Kevin Hagen, also stated that these financial and environmental goals and aspiration must be met without sacrificing either. Hagen advocated shifting to a framework of â€Å"no tradeoffs† thus making a paradigm shift; Innovation over compromise.Issue 1 First issue is whether the company’s stated sustainability goals and aspirations are consistent with its corporate mission and its stated stewardship objectives that are listed above. REI sustainability goals focus on three areas; energy consumption, greenhouse gas emission (carbon footprint) and reduction of waster to landfills. The company plans to add water, toxics, land use an d social impact to this list in near future. Each of these areas has an aspiration for 2020, a goal for 2015 and a budget for the current year. Energy consumptionREI has taken different initiatives to increase their energy efficiency by switching to new renewable power sources wherever possible. They mission is to keep their energy consumption at a fixed level despite opening new stores. One the ways they do this is by investing in self-generation options such as solar technology. Their ways of managing their energy use and increasing efficiency include: * Solar technology in many of our stores * Lighting: * Elimination of all incandescent bulbs from our retail stores * Installation of highly energy-efficient bulbs and fixtures * Greater reliance on skylights and natural lighting Heating & cooling (HVAC): * Aggressive retrofitting and replacement of outdated HVAC equipment with sophisticated new models * Centralized monitoring * Energy-saving techniques such as on-demand ventilation and airflow * Measurement of our stores' energy efficiency against similar buildings nationwide with the ENERGY STAR benchmarking tool Greenhouse gas emission (GHG) The aspiration for 2020 concerning GHG was to be climate neutral. Their goal for 2015 was to cut GHG by 50 percent compared to 2010 emissions. The budget for each year was a specific target in tons of CO2 that was defined by the 2015 goal.REI looked at many aspects of their business in order to reach this goal. These were not limited by their own specific action within REI. They look beyond themselves and try to change the way their employees and suppliers act to. The list include: employee commuting and travel, travel by customers participating in REI Adventures programs from their homes to the site of program, transportation of products from vendors to the company and shipments to customers. However, they have not included customer transportation to and from the stores.REI provides meaningful incentives for their empl oyees to reduce the environmental impacts of commuting and corporate travel. These include: * A 50 percent transit subsidy * Showers and secure bike storage at every REI facility * Telecommuting options at our headquarters location * Web conferencing and other technology tools In 2011, REI partnered with The Nature Conservancy to implement an afforestation project on the Bayou Bartholomew property in Louisiana, which will restore forest continuity with the adjacent Chemin-a-Haut State Park.Funding provided voluntarily by REI Adventures will finance the future retirement of carbon offsets from this project. Through this effort, REI supported The Nature Conservancy's restoration of this forest ecosystem, as well as the design of a carbon project. This carbon project has been validated and registered through a credible third-party certification system (the Verified Carbon Standard). The effort will contribute to long-term systemic change, benefitting the atmosphere and the forest ecosy stem, and has been designed to produce verifiable carbon offsets in the future.Though REI would seek new and innovative solutions to all aspects within the company, there is at least one were they could only offset rather than reduce. REI’s largest source of GHG emissions was REI Adventures which generated 31 percent of its total, namely flying members to adventure destinations. This exception was dealt with by purchasing carbon offsets as a part of the travel package, paid by REI. Reduction of waste to landfills REI aspiration for 2020 was to have no waste to landfills and cut waste to landfills by half between 2010 and 2015.In order to achieve this, they strive to make their packaging shipping operations as efficient as possible. They work with vendors, shipping companies and industry colleagues to pioneer new approaches to this complex situation. One example of this is how they reinvented the way bicycles were packaged and shipped. The bikes, shipped in cardboard boxes fro m china, was packaged in parts and assembled at one location in the US from where they were sent to the stores. The extensive packing, taped and stapled together, held the parts and assembled bikes securely but was difficult to assemble and disassemble.REI revised this process in way that allowed them to reuse the carton over and over again. Essentially, the same cartons that was used from the manufacturer in China, was used throughout the supply chain and returned to China, to once again be use. Thereby recycling all the materials rather than sending it to landfills. This decreased the cardboard consumption by more than 60 percent. Additionally they saved more than $1 million in annual labour hours due to reduced time required to pack and unpack bikes. Recap REI saw a rise in its net carbon impact during 2010.But the increase was smaller than overall company growth during the year, as measured by sales. Overall, the company used 2. 4% less energy in its facilities, despite adding f our new stores and relocating two retail locations to larger spaces. Other sustainability efforts include purchasing 58. 4% Forest Stewardship Council (FSC)-certified paper fiber, and recycling 74% of total operational waste, including more than 95% at REI’s two distribution centers. Community efforts included 109,785 volunteer hours committed through 541 REI-hosted conservation projects to plant trees, restore trails, and clean parks and streams.The company also funded $3. 7 million in grants provided to 330 nonprofit partners with a focus on conservation and outdoor recreation. However, REI is transferring renewable energy certificates generated by their solar panels. Since they do not claim credit for reducing carbon when doing so, this is creating a problem in terms of reaching carbon zero. A challenge they must overcome if they intend to reach their aspirations. REI could further reduce their GHG by reevaluating the use of New Zealand as a destination. Many locations on North American (e. g.Alaska, Canada, and the Rocky Mountains) continent have similar location to offer, and seeing that New Zealand is half away around the world, this could be an effective substitution. Exhibit three displays the progress of reaching the 2015 goals. Is shows the actual status of all three areas in e. g. the first quarter of 2011, the plan for 2011, the trajectory for 2015 and the goal for 2015. Though the trajectories for 2015 for all three are above the goal, one can see from the actual status for 2011, that they are all fairly close if not under the plan for the same year.So despite the gloom trajectory for 2015 REI is indeed on the right path. Issue 2 The second issue was identifying the potential risks with REI adopting the â€Å"No Trade-offs† approach articulated by the corporate social responsibility group, seen from a managerial performance measurement perspective. The â€Å"No trade-offs† approach presents several risks. It can prove be expen sive, not only in the solutions required to fulfil but also the hours it take to reach them. As the CEO aspires innovation over comprise, the employees will always have to look for new ways of performing tasks.This takes time and time is money. This is also a very black and white approach leaving none or very little wiggle room. The employees need to stay within the parameters and in some cases they might be looking for solutions that are simply not there. Again, this is time consuming and will undoubtedly make REI miss out on additional earnings lost by looking in other fixed directions. REI has set the bar high and this might also have a negative effect on the people working to find the solutions. If the goals seem too impossible, it might demotivate rather than inspire thus lowering the morale among the workforce.However, by setting a more reasonable goal for 2015 this is somewhat counteracted. Recap So there are several risks by the â€Å"No trade-off† approach, but REI s eems to get around them. The company is still growing and still finding ways to lower their influence on the environment. The Workplace section also notes that REI has been included on Fortune magazine’s â€Å"100 Best Companies to Work for† list for 14 consecutive years. The company has a 79% employee retention rate. Issue 3 The third issue was to evaluate the validity of the company’s approach to measuring its carbon emission.The goals for environmental sustainability were set by the office of CEO. They were included in the company’s non-financial KPIs (Key Performance Indicators). The CSR group is tasked to carry them out, however they also make the recommendation to the office of the CEO on which the goals are based. This could create internal problematic situation as it is the same people who make the recommendations for the goals as well as carrying them, though some tasks are overseen by other departments than CSR.However, REI take a comprehensive view of their environmental impact using a framework that reflects the work of the Outdoor Industry Association’s Eco Working Group. They have established key performance metrics for e. g. the three before mentioned areas, and in 2011, they implemented measurement and reporting tools that enables them to forecast, budget and review their progress in these areas. These metrics tie directly into strategic and financial planning for key REI divisions, and results are assessed quarterly by company leadership.REI also became a member of bluesign technologies in 2008. The program requires tight manufacturing controls in mills and factories in order to be certified. This approach will provide greater supply chain transparency in support of REI's goal of reducing the environmental impact of its products. The transparency will also allow them to make a more precise assessment of their impact, as they will have greater access to their suppliers’ information regarding manufacturi ng. Recap Based on this I deem the validity of the company’s approach to measuring its carbon emission as high.

Beyond The Last Lamp and During Wind And Rain Essay

Compare the ways in which Hardy presents reactions to the loss of loved ones in these two poems Thomas Hardy uses change and passing time as symbols of death and loss in both poems: Beyond The Last Lamp and During Wind And Rain. The title, Beyond The Last Lamp, is a metaphorical way of describing darkness as the lamp signifies light and beyond light lies darkness, a representation of pain and misery. The whole poem revolves around a supposedly grieving, mysterious couple that the speaker observes over time. During Wind And Rain is also a depressing title as the rain suggests anguish and sorrow. The wind suggests progressing time, which could be seen as life, and perhaps death because that’s what life ultimately leads up to. A family is the subject of this poem and the speaker, again, tracks their progression over time. It is said that the poem is about the family of Emma Hardy, Thomas Hardy’s wife. Time represents and is represented by several different objects in both poems. Both poems use stanzas (Beyond The Last Lamp has five stanzas and During Wind And Rain has four) to develop ideas throughout the poem and show the passing time. ‘Ah, no; the years O!’ and ‘Ah, no; the years, the years;’ are alternately used as the penultimate line in each stanza of During Wind And Rain. This gives a sense of time moving at a fast pace and it being terrible and only bringing misery as the line is followed by an image of death. Place is used in powerful metaphors associated with time, life and death, and it gives the poem its atmosphere. Beyond The Last Lamp is set in a wet, dark lane, setting a heavy and depressing atmosphere. Even the light used in the poem is used to accentuate distress, ‘Each countenance as it slowly, as it sadly caught the lamplight’s yellow glance, held in suspense a misery’. There is also a close association between people and place as the speaker only remembers the lane through the couple: ‘Without those comrades†¦that lone lane does not exist’. Contrastingly, the atmosphere of During Wind And Rain is lively and happy for the first four lines of the stanza, as it focuses on a garden and family, however, it seems like the cheerful recollection ends with an ellipsis and the speaker is almost shaken back to reality. The last line of the stanza shows the place and nature in a dramatic and ghastly way, a clashing chord to the beginning: ‘How the sick leaves reel down in throngs’, showing the uncontrollable nature of death and the autumn season. ‘Reel’ connects with the previous to lines about music, ‘they sing their dearest songs’ since as a noun it means an Irish or Scottish folk dance. ‘And the rotten rose is ript from the wall’ uses alliteration to dramatize and emphasise the suddenness and horrific nature of death. Place is used to represent time, the stanzas show a progression of seasons: ‘summer tree’. Place is also used to describe the family going to heaven: ‘They change to a high new house’. The garden is also like a metaphor for life as it shows how people try and control it although it’s uncontrollable: ‘they clear the creeping moss†¦making the pathways neat’. People are the main focal points for both poems whether it is a family or a couple. The speaker writes as an outsider, an observer of these people. The couple in Beyond The Last Lamp are first described as ‘two linked loiterers’ which is then developed to ‘the pair seemed lovers’ in the second stanza, ‘twain’, in the third, ‘tragic pair’ and then ‘comrades’. Through this change in description, the speaker’s change in perspective and opinion of the couple’s relationship is visible as they deteriorate from lovers to tragic pair. Although there is deterioration, the pain is present from the beginning of the poem. Absence of happiness is used to create the sad feeling of the poem. Time represents a change for the worse. Their emotions follow a similar pattern and can also be traced from ‘heavy thought’ in the first stanza, to ‘misery’ in the second to ‘wild woe’ in the third. The actual change from happiness to misery isn’t shown extensively in the poem, but it is hinted at: ‘no longer orbed in love’s young rays’. However, the family’s relationships seem to remain intact throughout During Wind And Rain. The family of During Wind And Rain are shown as happy but unaware of the way time and death can remove everything: ‘they are blithely’. This almost naà ¯ve unawareness and the sudden, unexpected loss of happiness is used to emphasise feelings of pain. Time and their growth is shown by the differing description of its members: ‘Elders and juniors’ to ‘Men and maidens’. But they all die in the last stanza: ‘Down their carved names the rain-drop ploughs’. Time in this case repres ents death. The speaker has two very different styles in the poems although the perspectives are just as pessimistic about life and time. The already pessimistic perspective of the speaker also worsens as the poem progresses.   

Assignment Example | Topics and Well Written Essays - 1500 words - 2

Assignment Example One of the main technological advancements that completely transformed the business world is the invention of the Social Media Networks such as Facebook, Skype and Twitter. Technology enables people to network easily, chat and meet friends over the internet. In addition, businesses take advantage of this platform provided by social media networks to advertise their products and services, i.e. through e marketing and e-commerce. Social media networks have millions of people converging on their sites at the same time. Businesses are looking for these customers. Therefore, it is mandatory for every business to have a presence in social media in order to keep adrift with business trends and transformation (Hair, Lamb and McDaniel 14). On the other hand, social media networks also brought about significant transformation in the social-cultural arena whereby it transformed how people interacted. Through social media networks, it is possible for people to meet and make friends with other fr om parts of the globe. Furthermore, social media sites also enable people to participate in online conversations, voice their opinions about certain issues, as well as contribute to both educational and motivational blogs. As such, social communication greatly advanced through social media networks. This greatly improved interpersonal skills and modes of communication across the globe. The world has become a more social place thanks to social media, and social media networks enabled people to marshal support and fight champion for a common course, e.g. social media sites was very fundamental in organizing the Arab Uprising in Egypt in 2011 (Hair, Lamb and McDaniel 14). A recent study by a consumer health organization, Families USA, reported that pharmaceutical drug companies spend over $57 billion per year on promotion. Direct-to-physician activities accounted for the bulk of spending, on a practice called, â€Å"detailing†Ã¢â‚¬â€visits to physicians by pharmaceutical sales representatives in order to promote their firm’s drugs. Free drug samples distributed during these visit represent another significant expense. It is estimated that in total pharmaceutical companies spend over $61,000 in â€Å"promotion per physician†. The other major piece of the marketing ‘pie’ is spent on consumer-direct marketing—ads that suggest consumers ‘ask the doctor† about drugs we may not even need for ailments we may not even have. The report also states that each of the top 10 pharmaceutical companies spend more than twice as much on marketing on research and development. The market for prescription drugs is unique in many ways. Prescription drug marketers must convince a third party-- a physician-- to prescribe their product to the ultimate consumer, the patient. The decider is the physician, and drug manufacturers' promotional efforts traditionally have been directed toward physicians. Furthermore, drug firms increasingly have to influence committees in hospitals and health management organizations who are determining which drugs their physicians can prescribe. (15) (About 250-300 words) If prescription drugs can only be ordered by a physician, what is the purpose of marketing directly

Macro and Microeconomics Issues Essay Example | Topics and Well Written Essays - 2500 words - 2

Macro and Microeconomics Issues - Essay Example The analysis of price and income effects based on the estimated demand system has suggested that with the increase in food price inflation, the demand for staple food (rice, wheat, and sugar) may not be affected adversely but, that of high-value food commodities is likely to be affected negatively.† The increase in the price of orange due to supply constraints would lead to increase in prices of other fruits in general. Poor people tend to spend more on bread, a staple food item in spite of price increase by reducing their consumption of other food which cost more. This phenomenon is called as ‘Giffen’s Paradox’. Giffen’s paradox is not applicable in the case of orange, as it is not a staple food in poor households. Demand for the orange cannot be considered inelastic. Silberberg and Walker(687) observe â€Å"When the price of the Giffen good changes, therefore, not only does the income term outweigh the substitution term for the Giffen good, but a similar result is produced for the cross effect on the other commodity.† Therefore, increase in the price of orange will lead to increase in the price of other fruits like grapes or apples due to the substitution effect. The increase in price or orange induces farmers to increase the area under crop for oranges which are expected to increase the production of oranges to the normal level of demand in the economy. However, when the farmers have other alternatives of producing corn or other grasses, may be at a lesser cost of production for manufacture of ethanol, the scenario with regard to supply pattern changes drastically. President George W. Bush called for the United States to reduce its gasoline consumption by 20% in the next decade. Considering the growth rates in consumption of gasoline, reduction in consumption of gasoline is very difficult. He proposed an increase in ethanol produced from corn and the stalks and leaves from corn and other grasses.

The Cell Essay Example | Topics and Well Written Essays - 250 words

The Cell - Essay Example If both of these compounds are found in high amount than the process of the conversion of glucose into glycogen is mediated by insulin, which is stored in liver and muscles (Hardy 50). Glucose and Glycogen are the two major macronutrients found in the process. 2) Glycogenesis is an anabolic reaction because the series of reactions result is the formation of glycogen  whereas, glycolysis is catabolic in nature because it breaks down large glucose molecule into smaller components and releases energy. 3) Cellular compartmentalization is very important so that the products of each process remain unaffected from the surrounding cellular activities. Glycolysis occurs in the cytoplasm (cytosol) of cells. Cytoplasm is a not a membrane-bound organelle. All the major constituents of cells are found suspended in it. Glycolysis requires enzymes, which are abundant, find in the cytoplasm. These enzymes are not found in other organelles like mitochondria. The process of glycogenesis occurs in the cytoplasm of liver and muscle cells. When the blood sugar level is low, this stored glycogen is converted into glucose to replenish the energy requirement of the body as in the case of fight and flight. Both processes need oxygen, which is present in the cytosol. In glycolysis, high amount of energy is released; whereas,  in glycogenesis energy is required for the phosphorylation of glucose (Harvey 312). If cellular compartmentalization would not be present, the chemicals produce in each reaction (glycogen and glucose) would mix up with the products of other chemical processes occurring in other organelles like Krebs cycle in mitochondria. The product of glycolysis enters in the Krebs cycle, which takes place in mitochondria. These are stepwise processes, which are controlled due to cellular

Counseling in Schools Essay Example | Topics and Well Written Essays - 3750 words

Counseling in Schools - Essay Example The British government increased education funds from 60 million pounds in 1951 to 436 million in 1964 and supported child-centered education (Bor, Ebner-Landy, Gill and Brace, 2002). The 1960s were marked with the lifting of individual behavior constraints and the toleration of personal idiosyncrasies. Suicides, drugs, and sexual relationships caused many casualties in early 1960s, many under 25 years. This led to the proposal to provide secondary school students all the help they could get. One way of providing this help was the introduction of school counselors. The Schools Council formed in 1964 represented teachers in policy-making forums and promoting educational development (De Board, 1999). Recent studies have shown its resurgence as a non-stigmatization emotional support among pupils. The enactment of the Children Act in 2004 and the reshaping of children services give a prominent future for counseling (Cooper, 2009). Counseling services in schools are growing rapidly on a l ocal demand-led basis. Sources of counseling include school counselors, contract agencies such as Relate, and educational psychology referral services provided by LEA. Guidance from professional associations is not mandatory due to lack of a statutory base for counseling. The current restructuring of counseling provides new structures that can be challenging. Counselors have to provide therapeutic confidentiality through information protocols, shift towards multi-agency teams, and redefine their professional boundaries. School counselors provide therapeutic individual counseling that is distinct from other form s of support such as mentoring. Counseling is provided through several formats such as external counselors, members of teaching staff, or an external agency (Egan, 2002). Counseling provides pupils with an access to appropriate confidential service that has beneficial personal outcomes such as improved mental health. Students experience mental pressure after bereavement, bull ying, family breakup, and peer rejection. Counseling, especially by external counselors, provides an avenue for relieving mental pressure. These students eventually exhibit positive outcomes in education, behavior, and social and organizational activities. This helps them to enhance their social well being in the school. Confidentiality encourages students to open up to counselors and discuss personal matters that they may not discuss with parents or teachers. Solving individual problems helps enhance student self-esteem and improves their emotional well being. Counseling services are funded from the internal school budgets and provide students with a cost effective service for dealing with their personal difficulties. Schools hire individual external counselors, counseling firms, or utilize members of the teaching staff. This eliminates the need of visiting expensive counselors for students in need of counseling services. Schools provide the necessary funds and provide comprehensiv e support services. The school management has control of the counseling process and provides the overall direction for individual counselors and other pastoral support services. Previous research has shown that young people value having other people to turn to who include school counselors. Although several young people experience mental health problems, only a small percentage is

Gulf War Essay Example | Topics and Well Written Essays - 3000 words

Gulf War - Essay Example Today there are reports that US administration deceived the rest of the world, because the suppressed photographs of Russian network showed that there was absolutely no danger to oil supply by the Iraqi forces. The truth of this statement is yet to be established beyond doubt, although this war became the inception of the present Gulf War. Iraq had the world's 4th largest army with the elite 'Republican Guard'. It was widely assumed that Iraq used chemical weapons against Kurds and Iran. The contagious bacteria connected with the chemical weapons became a threat to the region. Even though now we are in the throws of another Gulf War, it should not be forgotten that the first Gulf War has left behind a trail in the form of Gulf War Syndrome. Most of the forces returned by the spring of 1991 to their home countries with apparent good health, other than the injuries of a few soldiers. Slowly self-reported, real or assumed health symptoms started emerging out. American, Canadian and British soldiers who served in the first Gulf War seemed to have developed certain common ailments after the war, which are generally termed as Gulf War Syndrome (GWS). The symptoms are varied, but if looked into, there is a common thread running in all of them. "These veterans "These veterans have been exposed to a variety of damaging or potentially damaging risk factors including environmental adversities, pesticides such as organophosphate chemicals, skin insect repellents, medical agents such as pyridostigmine bromide (NAPS), possible low-levels of chemical warfare agents, and multiple vaccinations in combinations, depleted uranium, and other factors" says a University Neurology Department paper of NHS Glasgow," http://www.ncbi.nlm.nih.gov/entrez/query.fcgicmd=Retrieve&db=PubMed&list_uids=9638279&dopt=Citation Many researches were conducted, findings of the clinical epidemiological studies were codified and now we have a remarkable knowledge of this syndrome that has bothered soldiers, their families and their physicians for a long time. With every new patient, old records were reviewed diligently. There were many studies that have tried to link them together so that one clear picture could emerge out of the entire problem. Soldiers were exposed to toxins, drugs, environmental hazards and many more risk factors and physicians feel that they have left behind strong negative affects on genetic and biological factors. Many of the researches have tried to find out the far reaching implications, including psychological affects left behind by the war. Some of them have questioned the safety level of the drugs used on soldiers as pain killers, or while treating the wounded soldiers. Some of the reviews have highlighted the importance of a combined approach, psychological as well as clinical while treating the problem. Emerging picture still is confusing and of little cohesion. It is also referred as "Chronic Multisystem Illness" according to Keiji Fukuda, in JAMA, Vol. 280, No. 11, September 16, 1998 (981-988). He had conducted well designed cross sectional survey of characters and symptoms with clinical evaluations, and research and he has arrived at the following conclusions: "Among currently active members of 4 Air Force populations, a chronic multisymptom condition was significantly associated with deployment

Historical Perspectives in Christianity Essay Example | Topics and Well Written Essays - 2000 words

Historical Perspectives in Christianity - Essay Example However, the Lutheran church was further divided into several denominations due to doctrinal differences. Some retained some rituals conducted by catholic faith while some did away with them altogether. Divisions continued and up to date many denominations continue to crop up. The birth of Pentecostalism however, can be attributed to the Azusa street revival led by William J. Seymour an African American preacher in 1906.2 Seymour was born in a catholic family but was later converted into born again Christian owing to his numerous travels. He believed in the baptism of individuals with the Holy Spirit and the filling of individuals with the Holy Ghost as stated in the book of Acts: 2 by Apostle Luke.3 The Pentecost was thus a renewal of the church and was referred as a revival. There are many events that led to the Azusa street revival that affected and continue to influence the church even today. These will be the focus of attention in this paper but first, a short history of the chu rch will be given. The rest of the paper will be based on the events in the life of William Seymour which led to the revival. Brief History of Christianity The early church mostly was comprised of the Jews hence was regarded as Jewish Christianity. Its roots can be traced in the New Testament where Jesus used to walk with His disciples preaching the gospel to all nations. When He ascended to Heaven, He promised the Apostles He would send them a helper in the name of the Holy Spirit to enable them to preach the gospel widely and this was fulfilled on the day of Pentecost.4 The apostles established a church and spread the gospel far and wide. However, they were all persecuted for holding on to their faith but this did not stop the gospel from spreading. These early churches practiced hymn singing and also believed in miracles such as healing. According to Noll, the Jews were attacked by Romans on 66AD and the war continued for seven years.5 This resulted in taking over of Jerusalem wh ich was the centre of Christianity’s communication, organization and authority and consequently replacing it with Rome. This according to Noll served to expand Christianity from Jewish Christianity to universal Christianity, that is, from Judaism to Christianity. The church became independent and creeds were established to â€Å"mark out boundaries of Christian faith.† 6 Christian reform did not end with transformation from Judaism to Christianity; rather, more reforms were in the offing. The Roman Catholic was the dominant denomination and followed the structure that was used by the apostles with the pope as the head of the church. However, the church entangled itself with politics and materialism leading to decay of some moral values. The congregation was supposed to pay taxes, women were not allowed to preach, indulgencies.7 Besides, some people were not happy with the doctrine of celibacy. As such, the protestant movement cropped up and led to reformation of the ch urch. In the protestant church, women were allowed to preach and clergy were allowed to marry. The doctrine of repentance or confession was done away with as people could communicate directly with God instead of confessing sins to priests.8 The protestant church also differed on several issues leading to formation of many other denominations such as Calvinists, Anabaptist, Lutherans and Anglicans.9 The ruling king decided on the denomination to be adopted by the country; some countries were

International Financial Management Essay Example | Topics and Well Written Essays - 3000 words

International Financial Management - Essay Example The paper tells that Ð µhe world is now a global village – a phenomenon which can be interpreted as a fact that the advancement in communication and technology has integrated the various economies on the globe. A brief analysis of the current economic scenario of any country would reveal that it is, in one way or the other, dependent on the social and economical activities of the other countries. A downward plunge in the New York stock exchange is likely to send shockwaves all across the globe which can be felt in financial market as further as Far East countries. Recently, when the cherished credit rating of United State of America was downgraded to AA+ from AAA, it caused turmoil at a global stage especially in the European countries. All the giant economies such as China and India were badly affected. The economies are have become interlinked in this era due to the fact that now the firms are indulging in international trade and have started exploring markets outside their place of origin. Companies such as HSBC holdings, General Electric, ExxonMobil, British Petroleum and Toyota Motor have two things in common. First, they are the leading and biggest multinationals in the world and second, they all practice prudent international financial management. From a theoretical point of view, the firms engage in international trade in order to obtain comparative advantage which allows the firms to penetrate the foreign markets. Other popular explanations for the firms indulging in the international trade are the product cycle theory and imperfect market theory. There are several ways through which a firm can participate in international business. The most common methods are International Trade Licensing Franchising Joint Ventures Acquisition of companies Foreign subsidiary International Financial Markets In today’s economy, international business is carried out at international financial market. These markets can be categorized as foreign exchange mar ket, international money market, international credit market, international bond market and international stock market. Foreign Exchange market allows for the trading of different currencies at a rate which is determined based on several facts such as inflation and relative interest rates. Foreign exchange market is not a specific building or place; rather the companies indulge in foreign currency transaction through commercial banks and telecommunication networks. Foreign exchange dealers serve intermediaries between the companies who intend to enter into a foreign exchange transaction. In International Money Market, the trading of currency futures and options takes place. Globalization have abridged the distances and abridged the financial bridges between the countries. Multinationals can now obtain medium and long term loan from banks and financial institution located in other countries. Especially in Europe these loans are termed as euro credit loans and are transacted in the Eu ro Credit market. The international credit markets are now developing rapidly in Asia and South America. Recent global economic events have revealed

Analyzing the causes of change Essay Example | Topics and Well Written Essays - 1000 words

Analyzing the causes of change - Essay Example This led to a position for Nokia which was not so mobile like before. The changes in the political environment included relaxation in the regulatory norms in telecommunication industry which attracted increasing number of foreign players in the telecommunications and mobile handset industry. The increase in the number of competitor and the launch of newly designed handsets in the market posed major challenges for Nokia (Burnes, 2009, p.52). The inclination of the customers towards the camera handsets launched by the competitors of Nokia led to the decline in market share of Nokia. The rise of Nokia to the leadership position in the 1990s created increasing job opportunities and rise in the income level of the people of various economies. The rise of the middle income group was the potential market that was tapped by the competitors of Nokia. The mobile handsets of Nokia were old fashioned that dated 10 years back. The market trends saw the launch of flashy and newly designed handsets with colourful screens and folding patterns (Reiss, 2012, p.39). The changes in the mobile handsets matched with the evolving social trends and demands of the customers. Nokia was unable to keep up with the recent changes in the market for which the market of Nokia declined in the recent years. Even the most loyal Finnish market of Nokia witnessed a decline in share from 93% to 80%. The technological advancements in the telecommunications industry and the increase in market share of LG, Motorola posed major threats to the business of Nokia in the several markets across the world. The mobile phone operators like Vodafone favoured the other mobile handset makers as they desired to provide services on mobile handsets that were updated to the market trends. Nokia did not believe in co-branding while the market trends saw increasing number of joint ventures and co-branding of products in order to meet the demands of customers (SENGUPTA, BHATTACHARYA and SENGUPTA, 2006, p.31). The sharin g of technology in the market helped the other market players to tap the customer segments who were looking for changes in the available features of the mobile handsets. These temporal changes in telecommunication device offerings to the market were due to the strategic policy making of the competitors (McLoughlin and Aaker, 2010, p.21). The changes in the political, economic, social and technological environment led to the loss of interest for Nokia among the market segments. Nokia could not identify the changes that took place in the market and failed to undertake strategic policies of change management in a timely manner. All these factors led to the decline in mobility of Nokia in the recent years. Use of multiple cause diagrams: forces of change management The decline in the market share of Blackberry smart-phones could be represented with the help of a multiple cause diagram to determine the factors that led to the changing scenario in the business of Research in Motion (RIM), the makers of Blackberry. The multiple cause diagrams would help the organization to respond to the forces of change and also enables the company in addressing the key variables in order to solve the complex dynamics of prevailing

Implementation of Supply Chain Management Essay Example for Free

Implementation of Supply Chain Management Essay Supply chain management is an oversight of processes when moving goods from the stage of customer order to the raw material stage and it includes the supply, production and distribution of products to the customer. Every organization has supply chain of different levels, depending upon their size and type of product they are manufacturing. Their aim is to provide the customer with enough information necessary to give the value that they demand and to gain the information regarding the customer too. The ultimate goal for any supply chain management is to reduce its inventory. For a successful supply chain, software systems are provided with web interfaces to provide the customer with enough information they demand. Hershey Foods Corporation and NIKE inc. are both very renowned organizations, one known for its food products and the other for athletic footwear, equipment and accessories for sports and fitness activities. Both of these organizations adopted supply chain management systems in order to lower down their inventories and to increase their profit. But both of them failed in achieving their objective which was to reduce the inventories. The main mistake made by Hershey Food Corporation was, that they hired a supply chain system costing $112 million from SAP AG, Manugistics, and Siebel systems. The supply chain system was supposed to put in data of everything from production to delivery. But getting software from three different providers created unpredicted delays and complex problems in implementation. Also, another mistake made by the organization was that they implemented the whole system at once instead of in stages. So therefore they faced problems in placing the orders and then executing them to warehouse for fulfillment. The problem faced by NIKE, inc. was a bit more complex, as said by 12 technologies marketing Chief Katrina Roche â€Å"NIKE problems were not tied to the software but to the way the software was installed. † (Sridharan, Caines, Patterson, 2005) Moreover he says that his company accepts the responsibility for â€Å"not being more aggressive in telling them that they needed to follow our implementation methodology. † (Sridharan, Caines, Patterson, 2005) 12 technologies wanted to track each and every little product of NIKE which made the job more complex and therefore it took their time more than they had expected. The NIKE people made the same mistake as Hershey foods, that they implemented the system before they were ready to execute it. (Sridharan, Caines, Patterson, 2005) So overall at initial stage supply chain systems were a bad experience for Hershey Foods and NIKE, Inc. There are certain things which if the company would have followed then hopefully the things must have been the other way round. First of all only one supply chain system provider must be hired for the software, as more than one supply chain systems for same job results in failure. Then provider’s implementation methodology is very important for client to follow in supply chain systems especially when they are modified to suit client’s requirement. More over supply chain systems are very complex as they have to track over numbers of product varieties so therefore it must be implemented in stages rather than executing it at once. And if the company is switching from one system to another then first the system should be tested in order to check whether it is fulfilling the company’s requirements or not. ?

Effects of Central Bank Independence on Inflation Rates

Effects of Central Bank Independence on Inflation Rates Abstract This paper analyses and explains the effects of central bank independence on a countrys inflation rates and its economic performance thereafter. It deals with the benefits believed to come along with independence and the delegation of monetary policy to the central bank, the determinants and accuracy of the index of central bank independence (CBI), and the different impact that CBI has on developed and developing countries. The studies and test conducted have shown that CBI lowers inflation in developed countries but in developing countries it might have the reverse effects, mainly due to the degree of independence, and factors like traditions, the law, and the statue of the economy which vary across countries. 1. Introduction This paper intends to study the relationship between central bank independence (CBI) and inflation levels among different countries; developing and industrialized. The main research problem that I intend to examine is whether central bank independence can lower the inflation rates of the countries that grant independence to their central banks, and whether this can lead to improved economic performance. What is discussed in this paper is not only whether central bank independence (CBI) can lower inflation and hence inflation variability, but also whether this can be achieved at low cost. The economies presented in the study include both those of the developed countries, e.g. the U.K., as well as those in transition e.g. Russia that have recently gained entrance in the EU. In this paper I analyze the impact of CBI on inflation, the benefits that are believed to come along with CBI and the factors used in measuring CBI. You will see that CBI can have different forms of measurement that produce slightly different results, hence the effectiveness of the CBI index is also analyzed. The reason for choosing this topic for further study is simply because during the past two decades there has been a considerable move towards central bank independence across several countries, with the belief that this will improve their inflation levels and thus contribute to economic growth. However, as you will see further on, this is not always the case, as some studies have revealed contradicting results, and economists and academics continue their studies to get a clerer picture of this issue. 2. The Spread of CBI and The Reasons for It To begin with, it is amazing how fast CBI has spread among countries and governments since the late 1980s. One simple explanation of this spread is A.Alesinas (1988; 845) statement: independent central banks have been associated with a lower average inflation rate and may have been responsible for reducing politically induced volatility of monetary policy and inflation 2.1 Should a central bank become independent? Folder (2005) explains that CBI was adopted to avoid possible disputes between political parties as a central bank is seen as a provider of information. Many economists have expressed their opinion on the spread of CBI; others have linked it to a way of avoiding the blame of political failure by some governmental parties (Miller, G. 1998, White 1994). Others have linked it to the infrequent changes of the government (de Haan and vant Hag, 1995). That is, central bank independence in many cases was adopted after periods of high inflation in order to reduce it, due to the inflation targeting function a central bank is capable of pursuing. It can also be associated with the attraction of foreign investment and hence economic growth as a consequence of the targets set and the autonomy with which the bank can then operate (Maxfield, 1997). In countries within the European Union, CBI is a perquisite following the Maastricht Treaty (1992) for adopting the euro currency. Overall and according to Folder (2005), independence has always been related to the adoption of anti-inflationary measures for pursuing monetary policy, but its explanation lies within the sociology of the financial elites and the politics legitimizing their policy preferences. The reasons behind achieving price stability through gaining central bank independence, Cukierman (1996) explains are several and include; the breakdown of other institutions like the European Monetary System (EMS) that had been responsible for maintaining price stability which is considered as the single and most significant objective of a central bank. Ilieva and Gregoriou (2005) suggest that in transition economies central bank independence has increased mainly due to the desire of such countries like e.g. Czech Republic, Poland, Romania, etc., to join the European Union and the acquis communautaire that applicant countries should adopt. As they continue to reason the addiction to CBI, they add that another incentive for CBI is the international financial institutions such as the IMF (International Monetary Fund) that require certain criteria to be met before making unconditional loans, and these criteria are feasibly met with the help of CBI. Also, countries are attracted to CBI as this will attract potential investors by improving the nations creditworthiness. Cukierman, A. (1996) analyses developments since the late 1980s to the legal independence of central banks and to its meaning; the measurement of CBI, the interaction of central banks with the government, its effect on the economy, its determinants, etc According to Cukierman, the trend towards CBI is due to a quest for price stability which is due to the following two reasons: First, following the stagflation of the seventies and the adverse economic performance of some high inflation countries, in Latin America and elsewhere, conventional wisdom concerning inflation and real growth has changed. Whereas during the sixties the accepted view was in line with Keynesian dogma, that some inflation is good for growth, during the eighties and nineties became that inflation and the associate uncertainties retard growth. (1996; 3) The good economic performance of Japan and Germany, countries with already low inflation added more value to the above concept. Second, the rapid growth and internationalization of capital markets raised the importance of price stability as governments and private investors sought to enhance their access to broadening world financial markets. (1996; 3) 2.2 Types of Central Bank Independence Independence with regards to central banking can be categorized into different groups, depending on the degree of freedom and the subject from which the central bank becomes independent. The major types of independence are; Legal independence, where the bank is partly accountable to the government and legislation provides a framework within which the central bank and the government cooperate on certain issues. This form of independence varies significantly among countries as it depends on how strong in the law in each country and the degree to which it is followed. However, the degree of legal independence, namely LVAW, as it will be shown below, has been used by many as a major index of measuring the degree of CBI. Goal independence refers to the case where the central bank is allowed to set its own goals, e.g. price stability, money supply, inflation targeting. However in most cases under this type of independence, the bank will decide on its goals with the confirmation of the relevant governmental departments. In this way, goal independence helps avoiding conflicts among fiscal and monetary policies, and increases the level of transparency and credibility of the central bank over its goals. Operational independence is the most common form of independence and is followed by many central banks around the world, for instance, the Bank of England since 1997. It involves the government setting the banks goals e.g. a 2% level of inflation, but the central bank being free to choose the instruments e.g. interest rates, to meet the targets set by the government. Another form of independence is managerial independence, by which the central bank has the power of appointing its own stuff, set its budget, etc. This form is a necessity for the existence of the other abovementioned forms of central bank independence and is therefore granted to all central banks that can call themselves independent. 2.3 The case for central bank independence There is a huge surge towards central bank independence by both the public and the governments, in the belief that independent central banks will not only achieve low inflation rates and price stability, but will subsequently lead to long-term economic growth and development. However CBI is an issue that needs further research before determining whether it should be adopted by all countries. This depends on the economic state of the country, whether it is a developed or a developing country or even on the demand of autonomy by the political parties within the country since by granting independence the government must pass to the bank the responsibilities of e.g. controlling the interest rates, etc. over which it used to have the power. Another issue that needs to be examined before granting independence to a central bank is the political stability and the degree of uncertainty within the country. This is because in times of uncertainty and instabilities, e.g. prior to elections, the public favours CBI as an independent central bank is more objective in its role and always forward looking without ignoring the long-term effects of its decisions. The majority of the parties affected by the actions of an independent central bank, i.e. the government as well as the general public are attracted by CBI because of the greater accountability and transparency the bank is equipped with when adopting a greater degree of autonomy. Moreover, it is expected to bring lower levels of inflation and this is the main reason why people welcome CBI and the number of central banks becoming independent has been increasing over the years. The main reason behind this expectation is because a central bank generally acts in favor of the public and in addition to the fact that it becomes free from the government and any political pressures, it is in a position to avoid short-term temptations regarding low interest rates which the government usually uses prior to electoral periods, for the sake of long-term low inflation and price stability, which in combination with other exogenous factors can result in economic growth. Moreover, when a central bank gains its independence through institutional reform it becomes capable of appointing its own governor thus it moves away from political interference, and can also set an explicit inflation target. Additionally and as Carlstrom, T.C. and Fuerst, S.T. (2006) explain independence helps a central bank in constraining the behavior of fiscal authorities. That is, it can prevent people and especially the government following fiscal policy from acting in their short-term best interests, recognizing that any actions taken in the short-term e.g. lowering the interest rates to attract investments, may become undesirable in the long-term, e.g. rising inflation levels as with higher demand from low interest rates, the prices will likely increase. In this way, CBI also prevents the fiscal authorities from inflating the short-term for delivering e.g. favorable exchange rates. Hence, monetary policy can run in a more credible way and following the targets set, markets w ill know what to expect thus shocks will be limited. However an independent central bank is also likely in extreme cases to bring so low levels of inflation that can be harmful to the economy. According to Epstein, G. (2007), the 3.5% drop in inflation levels by countries adopting an inflation-targeting monetary policy (IMF, 2006) is questionable as to whether this decline will improve economic growth. Explicitly, if the inflation level of a country is already low and the central bank adopts an inflation-targeting monetary policy then the resulting lower inflation level might prove dangerous to the economy by generating economic cycles. Cukierman (1996) has developed two separate approaches for reasoning the urge towards central bank independence and explaining the benefits that can be enjoyed from independence. These include; the theoretical approach according to which in the short-run monetary policy can be conducted in such a way that it allows for some inflation so that it can achieve employment, high economic activity and low interest rates. Hence, policy makers can expect some degree of inflation which they will present in the form of nominal wage and capital market contracts. In this way however, policy makers will have to keep inflation at a level that would balance the real equilibrium if they had been committed to zero-inflation. As a result of this discretionary use of monetary policy, this is subject to inflationary bias, and this bias can only be minimised if monetary policy is delegated to an independent central bank because only this institution is free to choose how to operate monetary policy and takes interest mostly if not only to price stability. And the empirical approach by which the case of CBI lies on empirical evidence showing that countries with an independent central bank have lower inflation rates and higher growth rates per capita output. An example of such a country is New Zealand: 2.3.1 The case of New Zealand New Zealand is a country whose central bank managed to drop the inflation level after being granted with greater independence. The Reserve Bank of New Zealand was granted independence in 1989 following the Reserve Bank of New Zealand Act of 1989 and had therefore established an explicit inflation target. The result was to reduce inflation levels from 7.6% during the years 1955-1988 from when the reserve bank was not independent, down to just 2.7%, after becoming independent, during the period 1989-2000. The latter rate is now considered one of the lowest among industrialized countries. It is obvious that among all OPEC countries, the central bank of New Zealand managed to achieve the lowest inflation rate, especially during the 1990s. What happened during the period of the inflation reduction was that the reserve bank of New Zealand went through a reform that resulted in it being granted with independence and a greater degree of autonomy, leading to low inflation. Specifically, prior to 1989 it used to be an arm of the government. Monetary policy used to be subject to the ministry of finance and therefore the government. As a result, the level of independence was one of the lowest among industrialized countries, while the level of inflation was of the highest. Even then, the relationship between central bank independence was negative, even though the results were the reverse of what is considered optimum, i.e. greater independence, lower inflation. In 1989, the Reserve Bank of New Zealand Act was passed by law. This act codifies inflation targeting and gives more autonomy to the countrys central bank in order to meet its objectives. According to the Act the central banks primary function is: to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices. (Reserve Bank of New Zealand Act, 1989 as quoted in Carlstrom T.C. and Fuerst, S.T., 2006, p.3). The impact of the Act on New Zealands economy and specifically the Reserve Banks autonomy can be seen in figure 2 below, which compares the degree of independence across different time periods and among different countries. The findings of the New Zealand case show that if the country had adopted independence earlier then its average inflation rate would be 3.4% rather than 7.6% that it actually used to be, assuming all other things being equal. Following this assumption, CBI itself would be sufficient to reduce worldwide inflation levels from 5.6% down to 3.8%. Despite the considerable drop in New Zealands inflation rate it is still questionable whether this drop was caused solely by CBI, and it is difficult, if not impossible, to quantify by how much the inflation reduction was due to CBI. Firm conclusions cannot be made yet since the data used in this case is of limited sample size and comparisons would therefore be insufficient. What is true is that the relationship between CBI and inflation is similar across time. Any changes to the strength of this relationship are mostly due to macroeconomic and other factors such as the state of the economy, the state of the government, e.g. democracy, etc. and others that will be explained later in this paper. 3. Measuring Central Bank Independence The degree of CBI for each central bank varies according to the state of each country and to compliance with the law. As Cukierman explains, in developing countries where compliance with the law is poor, a suitable proxy for CBI would be the turnover of central bank governors, whereas in industrialised countries such a proxy would be legal independence. Generally, when the appropriate index of independence is used, the results indicate an inverse relationship between CBI and inflation. However, care should be taken not to mistake legal independence with actual independence, as legal independence is necessary but does not guarantee actual independence; legal independence is a necessary, but not a sufficient condition for a truly independent CB. (Cukierman, A., 2001; 7). Exceptions exist, like developed countries, where legal independence seems to be a good proxy because law is highly complied. For a clearer picture of the effectiveness of CBI on the economy, it is preferred that some variables that make up the CBI index are used in combination, or that some indices are used only for a specific purpose. For instance, legal independence is a good proxy for actual independence in developed countries rather than in developing ones. 3.1 The Cukierman Index of CBI The method that will be used the most in this paper to measure the degree of central bank independence and its relationship with inflation will be Cukierman Index (1992), the most widely accepted and used index for this purpose. Initially, the exact definition of the Cukierman Index according to Siklos, P. (1992; 65) is: An indicator of the degree of autonomy enjoyed by several central banks. Cukierman Index to demonstrate graphically the measures of CBI and inflation during two different decades, namely the 1980s and the 1990s: As can be seen in the above graphs during the 1980s even though CBI was not common across countries, there was a negative relationship between CBI and inflation level. This means that the greater the level of independence of a central bank, the lower the level of inflation within the particular country. It is thus obvious that the correlation between CBI and inflation is negative, whereas the errors overall are not fitted closely on the regression line. We should note however that the decade of 1980s was before central banks especially those within industrialized countries underwent major reforms in their statutes which then allowed them a greater degree of autonomy. During the 1990s as Siklos, P. (2002) explains, most central banks went through a reform, as there was a trend towards CBI. As a result the overall degree of CBI increased and all index values were revised upwards, the government granting more autonomy to central banks, in the belief that greater independence would just be adequate for lowering the level of inflation. However, the relationship between CBI and inflation during the 1990s turned out to be the reverse of that of the previous decade. That is, the correlation between CBI-inflation now became weaker but positive since the regression line on the scatter gram in figure 3b has an upward slope, meaning that inflation increases with the degree of independence. It is hard to explain what was wrong with the findings of the 1990s that caused the correlation to be positive, however one might argue that CBI increased for all countries during the 1990s and so it also reflects the inflation performance of the previous decade, although the more independent central banks have delivered lower inflation levels in the 1980s. Furthermore, the Cukierman Index used is believed to contain some inaccuracies concerning the measurements of the degree on independence and thereafter the relationship of that with inflation because it was extended from the 1980s towards the 1990s in a different way than the one initially specified. For this reason more tests will be carried out to explain and compare the effectiveness of measuring CBI using the Cukierman Index in contrast to other indices developed for the same purpose, for instance Alesina and Summers Index. The Cukierman Index will also be used to test the effect of CBI on inflation in transition economies, based on Ilieva and Gregoriou (2005) paper regarding inflation performance, i.e. average inflation and inflation variance, and CBI in transition economies during the period 1991-2003. 3.2 The determinants of the CBI index The degree of independence varies across countries. This is not only due to factors such as the type of independence of each bank, although the most common is operational independence, the degree of law compliance in each country, and tradition, but some other systematic factors as well. Such factors are described and categorized by Cukierman, who presents some hypotheses on these factors: Hypotheses about the determinants of CBI Initially, it is widely accepted that any form of inflationary bias raises the independence of central banks to the degree that politicians wish to grant to the CB. The main idea behind this concept is that the benefits of delegating monetary policy to an independent central bank will be higher when inflation bias is higher in instances of e.g. employment reaction to inflation shocks. This delegation according to Cukierman helps in preventing the competing political party from taking on activities not favoured by the government. Secondly, Cukierman et al (1992, 2001) make the hypothesis that: the wider are the financial markets and the more elastic the supply of funds to government with respect to the interest rate, the more likely is the CB to be independent. (2001; 19). Additionally, Maxfield (1995) supports that political authorities favour CBI where there is need for funds. When this need is high as he explains, the government delegates more authority to the central bank in order to signal the nations creditworthiness. Finally, the cases of countries that have experienced extremely high levels of inflation in the past, like Germany, Austria, and Brazil, show that such countries are more likely to delegate independence to a central bank so that politicians do not interfere with monetary policy. 3.3 The measurement of the CBI Index Due to the widespread concept that the degree of independence of a nations central bank plays a crucial role upon the policy actions and inflation, Cukierman (1992) presents an analysis of the effects of CBI on inflation and provides various indicators of CBI. However, as he explains, the degree of CBI is determined by several factors from legal to cultural some of which are difficult to measure and quantify, therefore the impact of CBI on inflation varies among countries and there is a certain degree of uncertainty about the level of CBI. As a result, the measurement and the creation of an index of CBI have been based on legal independence, as the degree of CBI also depends on the degree of independence granted to the bank by the law. Despite the variations in the degree of CBI, it can be deduced that a low degree of CBI is linked with higher levels of inflation and inflation variability, while the level of credibility of a central bank with a low degree of CBI will be lower. Cukierman presents three different sets of indicators of CBI; a proxy for legal independence and proxies for the deviations of actual from legal independence. Independence measured under these proxies is limited specifically to the Central banks ability to meet a single objective; price stability. The reason for using several proxies in measuring CBI is because each proxy is a noisy indicator that captures a somewhat different aspect of CB independence (Cukierman, 1992; 370), so using a combination of them reduces this noisiness of the overall measure 3.3.1 Measuring and Coding Legal Central Bank Independence Using a proxy of legal independence is vital in making comparisons with previous studies on the impact of CBI on economic issues because all existing attempts on the features of an independent central bank rely on the banks legal independence. Cukierman presents the indices of legal aspects of CBI by separating into four groups the variables which make for a legally independent central bank. These groups are: Chief executive officer: CEO Policy formulation: PF Final Objectives: OBJ Limitations on lending: LLand codes them by the degree of independence of each group for the central bank of each of the countries included in the study. The main assumptions made are; the central banks whose single objective is price stability are considered to be more independent, so are central banks with stricter limitations on lending from the CB. The coding involves sixteen different variables in a scale from 0 (least independence) to 1 (maximum independence), during the time period 1950-1989, separated into four different decades. Due to the narrow definition of each of the variables used and the consequent lack of precision and multicollinearity problems that may arise, these variables are aggregated into eight legal variables by just calculating the unweighted mean of the codings used. Furthermore, it is necessary to have an additional single index of legal independence for each country to assess the aggregate legal independence of the CB. This index can have two alternatives, the LVAU and the LVAW, that are computed by calculating the average of the codings of the first eight variables as described above. Table 1 in Appendix A shows the ranking of the countries according to the legal independence of their central banks as measured by the LVAU during the eighties decade. The LVAW would also give a similar picture. Looking at the table of results one can see that among the seven most highly-ranked countries four are developed (Switzerland, West Germany, Austria and U.S.), while among the seven least-ranked countries four are less developed (Morocco, Panama, Yugoslavia and Poland). Generally, the top 10% of the rankings is comprised of developed countries, whereas the bottom 10% is concentrated with less developed countries. One should also note that there had been no hyperinflation experienced by developed countries during the 1980s, while some of the Latin America countries have, e.g. Brazil and Bolivia with a rate of 230%. This according to Cukierman may suggest that legal CBI may be neither necessary nor sufficient for low inflation. (1992; 382). 3.3.2 The turnover rate of Central Bank governors as a proxy for actual independence As already explained, the legal status of the central bank is just one of the several determinants of actual CBI. There is no clear systematic indicator of actual CBI, but Cukierman (1992) presents two sets of such indicators. One is based on the actual turnover rate of the central banks governor, and the other is based on the answers given to a questionnaire on CBI. Table 2 in Appendix B shows the CB governors turnover rates for the period 1980-1989. It is assumed that the lower the turnover rate the higher the degree of actual independence. Although the results are chronologically old, it is obvious that turnover rates in less developed countries occupy a range that has never been experienced by developed countries. It is indicative that more than half of the less developed countries have a turnover rate higher than the maximum of the rate of developed countries. It is clear that less developed countries experience higher inflation rates, on the grounds of lower actual CBI. On the other hand, low turnover does not necessarily imply a high level of CB independence on the grounds that a relatively subservient governor will tend to stay in office longer than a governor who stands up to the executive branch. (Cukierman, 1992; 385) Critically assessing the results, since the maximum turnover rate for developed countries is 0.2 (.e. five years) suggests that the turnover proxy may not be effective proxies for actual CBI for the sample of developed countries, whereas this proxy can be considered indicative for the sample of developing countries since these have turnover rates exceeding 0.2. 3.3.3 Central Bank Independence from answers to a questionnaire Another aspect of characterizing CBI is the questionnaire. Under this method, answers were obtained from qualified central bankers from twenty-four countries during the period 1980-1989. The main questions asked covered the issues of; legal independence, final monetary policy objectives, monetary policy instruments, actual independence and its divergence from the law and intermediate targets and their indicators. In coding the variables of the questionnaire, the bank is assumed to be more independent, all other things being equal, if the following hold; the term of office of the CB governor is longer than that of the government, limitations exist on lending from the CB which the government is in no position of altering, and in cases where stock targets exist because these mean that the CB is more free to meet its price stability target. Table 3 in Appendix C shows the ranking of central banks by aggregate indices of independence according to questionnaire responses. The aggregate indices of QVAU and QVAW reflect the law and the way it is implemented in practice respectively, as well as important information about actual independence, and are very similar (à ?=0.99). The rankings agree to earlier studies that central banks of developed countries are more independent. However, the median of QVAU for developed countries, that is 0.6 for Britain and Lebanon, is greater than the median for less developed countries, that is 0.49 for Uruguay, and this contradicts the above findings for legal independence using the LVAU. When measuring the degree of CBI it should be taken into account that the measures used above fail to quantify all the aspects of CBI as some are difficult to quantify. Such aspects are the quality of the banks research department and its standing in comparison to other economic research institutions within the public sector (Cukierman, 1992). Independence is generally higher in countries with highly-developed financial markets according to Cukierman because the supervision of financial institutions is under the authority of the CB, so the larger the market the more wide the span of the CBs authority. 4. Central Bank Independence and Inflation Targeting In this section the impact of central bank independence on inflation, inflation variability and the economy overall is analyzed using a model to test whether CBI can actually lower inflation, and comparing the effects of CBI by using both the Cukierman and the Alesina indices of CBI. Additionally, the costs of achieving lower inflation through central bank independence are also explained. MacCallum, B. (1995) believes that it is strong will that is necessary for proper policy behaviour by central banks, not rules and regulations. A policy maker, i.e. a central banker in this case should act immediately to an inflation shock to restore the problem without letting any sp Effects of Central Bank Independence on Inflation Rates Effects of Central Bank Independence on Inflation Rates Abstract This paper analyses and explains the effects of central bank independence on a countrys inflation rates and its economic performance thereafter. It deals with the benefits believed to come along with independence and the delegation of monetary policy to the central bank, the determinants and accuracy of the index of central bank independence (CBI), and the different impact that CBI has on developed and developing countries. The studies and test conducted have shown that CBI lowers inflation in developed countries but in developing countries it might have the reverse effects, mainly due to the degree of independence, and factors like traditions, the law, and the statue of the economy which vary across countries. 1. Introduction This paper intends to study the relationship between central bank independence (CBI) and inflation levels among different countries; developing and industrialized. The main research problem that I intend to examine is whether central bank independence can lower the inflation rates of the countries that grant independence to their central banks, and whether this can lead to improved economic performance. What is discussed in this paper is not only whether central bank independence (CBI) can lower inflation and hence inflation variability, but also whether this can be achieved at low cost. The economies presented in the study include both those of the developed countries, e.g. the U.K., as well as those in transition e.g. Russia that have recently gained entrance in the EU. In this paper I analyze the impact of CBI on inflation, the benefits that are believed to come along with CBI and the factors used in measuring CBI. You will see that CBI can have different forms of measurement that produce slightly different results, hence the effectiveness of the CBI index is also analyzed. The reason for choosing this topic for further study is simply because during the past two decades there has been a considerable move towards central bank independence across several countries, with the belief that this will improve their inflation levels and thus contribute to economic growth. However, as you will see further on, this is not always the case, as some studies have revealed contradicting results, and economists and academics continue their studies to get a clerer picture of this issue. 2. The Spread of CBI and The Reasons for It To begin with, it is amazing how fast CBI has spread among countries and governments since the late 1980s. One simple explanation of this spread is A.Alesinas (1988; 845) statement: independent central banks have been associated with a lower average inflation rate and may have been responsible for reducing politically induced volatility of monetary policy and inflation 2.1 Should a central bank become independent? Folder (2005) explains that CBI was adopted to avoid possible disputes between political parties as a central bank is seen as a provider of information. Many economists have expressed their opinion on the spread of CBI; others have linked it to a way of avoiding the blame of political failure by some governmental parties (Miller, G. 1998, White 1994). Others have linked it to the infrequent changes of the government (de Haan and vant Hag, 1995). That is, central bank independence in many cases was adopted after periods of high inflation in order to reduce it, due to the inflation targeting function a central bank is capable of pursuing. It can also be associated with the attraction of foreign investment and hence economic growth as a consequence of the targets set and the autonomy with which the bank can then operate (Maxfield, 1997). In countries within the European Union, CBI is a perquisite following the Maastricht Treaty (1992) for adopting the euro currency. Overall and according to Folder (2005), independence has always been related to the adoption of anti-inflationary measures for pursuing monetary policy, but its explanation lies within the sociology of the financial elites and the politics legitimizing their policy preferences. The reasons behind achieving price stability through gaining central bank independence, Cukierman (1996) explains are several and include; the breakdown of other institutions like the European Monetary System (EMS) that had been responsible for maintaining price stability which is considered as the single and most significant objective of a central bank. Ilieva and Gregoriou (2005) suggest that in transition economies central bank independence has increased mainly due to the desire of such countries like e.g. Czech Republic, Poland, Romania, etc., to join the European Union and the acquis communautaire that applicant countries should adopt. As they continue to reason the addiction to CBI, they add that another incentive for CBI is the international financial institutions such as the IMF (International Monetary Fund) that require certain criteria to be met before making unconditional loans, and these criteria are feasibly met with the help of CBI. Also, countries are attracted to CBI as this will attract potential investors by improving the nations creditworthiness. Cukierman, A. (1996) analyses developments since the late 1980s to the legal independence of central banks and to its meaning; the measurement of CBI, the interaction of central banks with the government, its effect on the economy, its determinants, etc According to Cukierman, the trend towards CBI is due to a quest for price stability which is due to the following two reasons: First, following the stagflation of the seventies and the adverse economic performance of some high inflation countries, in Latin America and elsewhere, conventional wisdom concerning inflation and real growth has changed. Whereas during the sixties the accepted view was in line with Keynesian dogma, that some inflation is good for growth, during the eighties and nineties became that inflation and the associate uncertainties retard growth. (1996; 3) The good economic performance of Japan and Germany, countries with already low inflation added more value to the above concept. Second, the rapid growth and internationalization of capital markets raised the importance of price stability as governments and private investors sought to enhance their access to broadening world financial markets. (1996; 3) 2.2 Types of Central Bank Independence Independence with regards to central banking can be categorized into different groups, depending on the degree of freedom and the subject from which the central bank becomes independent. The major types of independence are; Legal independence, where the bank is partly accountable to the government and legislation provides a framework within which the central bank and the government cooperate on certain issues. This form of independence varies significantly among countries as it depends on how strong in the law in each country and the degree to which it is followed. However, the degree of legal independence, namely LVAW, as it will be shown below, has been used by many as a major index of measuring the degree of CBI. Goal independence refers to the case where the central bank is allowed to set its own goals, e.g. price stability, money supply, inflation targeting. However in most cases under this type of independence, the bank will decide on its goals with the confirmation of the relevant governmental departments. In this way, goal independence helps avoiding conflicts among fiscal and monetary policies, and increases the level of transparency and credibility of the central bank over its goals. Operational independence is the most common form of independence and is followed by many central banks around the world, for instance, the Bank of England since 1997. It involves the government setting the banks goals e.g. a 2% level of inflation, but the central bank being free to choose the instruments e.g. interest rates, to meet the targets set by the government. Another form of independence is managerial independence, by which the central bank has the power of appointing its own stuff, set its budget, etc. This form is a necessity for the existence of the other abovementioned forms of central bank independence and is therefore granted to all central banks that can call themselves independent. 2.3 The case for central bank independence There is a huge surge towards central bank independence by both the public and the governments, in the belief that independent central banks will not only achieve low inflation rates and price stability, but will subsequently lead to long-term economic growth and development. However CBI is an issue that needs further research before determining whether it should be adopted by all countries. This depends on the economic state of the country, whether it is a developed or a developing country or even on the demand of autonomy by the political parties within the country since by granting independence the government must pass to the bank the responsibilities of e.g. controlling the interest rates, etc. over which it used to have the power. Another issue that needs to be examined before granting independence to a central bank is the political stability and the degree of uncertainty within the country. This is because in times of uncertainty and instabilities, e.g. prior to elections, the public favours CBI as an independent central bank is more objective in its role and always forward looking without ignoring the long-term effects of its decisions. The majority of the parties affected by the actions of an independent central bank, i.e. the government as well as the general public are attracted by CBI because of the greater accountability and transparency the bank is equipped with when adopting a greater degree of autonomy. Moreover, it is expected to bring lower levels of inflation and this is the main reason why people welcome CBI and the number of central banks becoming independent has been increasing over the years. The main reason behind this expectation is because a central bank generally acts in favor of the public and in addition to the fact that it becomes free from the government and any political pressures, it is in a position to avoid short-term temptations regarding low interest rates which the government usually uses prior to electoral periods, for the sake of long-term low inflation and price stability, which in combination with other exogenous factors can result in economic growth. Moreover, when a central bank gains its independence through institutional reform it becomes capable of appointing its own governor thus it moves away from political interference, and can also set an explicit inflation target. Additionally and as Carlstrom, T.C. and Fuerst, S.T. (2006) explain independence helps a central bank in constraining the behavior of fiscal authorities. That is, it can prevent people and especially the government following fiscal policy from acting in their short-term best interests, recognizing that any actions taken in the short-term e.g. lowering the interest rates to attract investments, may become undesirable in the long-term, e.g. rising inflation levels as with higher demand from low interest rates, the prices will likely increase. In this way, CBI also prevents the fiscal authorities from inflating the short-term for delivering e.g. favorable exchange rates. Hence, monetary policy can run in a more credible way and following the targets set, markets w ill know what to expect thus shocks will be limited. However an independent central bank is also likely in extreme cases to bring so low levels of inflation that can be harmful to the economy. According to Epstein, G. (2007), the 3.5% drop in inflation levels by countries adopting an inflation-targeting monetary policy (IMF, 2006) is questionable as to whether this decline will improve economic growth. Explicitly, if the inflation level of a country is already low and the central bank adopts an inflation-targeting monetary policy then the resulting lower inflation level might prove dangerous to the economy by generating economic cycles. Cukierman (1996) has developed two separate approaches for reasoning the urge towards central bank independence and explaining the benefits that can be enjoyed from independence. These include; the theoretical approach according to which in the short-run monetary policy can be conducted in such a way that it allows for some inflation so that it can achieve employment, high economic activity and low interest rates. Hence, policy makers can expect some degree of inflation which they will present in the form of nominal wage and capital market contracts. In this way however, policy makers will have to keep inflation at a level that would balance the real equilibrium if they had been committed to zero-inflation. As a result of this discretionary use of monetary policy, this is subject to inflationary bias, and this bias can only be minimised if monetary policy is delegated to an independent central bank because only this institution is free to choose how to operate monetary policy and takes interest mostly if not only to price stability. And the empirical approach by which the case of CBI lies on empirical evidence showing that countries with an independent central bank have lower inflation rates and higher growth rates per capita output. An example of such a country is New Zealand: 2.3.1 The case of New Zealand New Zealand is a country whose central bank managed to drop the inflation level after being granted with greater independence. The Reserve Bank of New Zealand was granted independence in 1989 following the Reserve Bank of New Zealand Act of 1989 and had therefore established an explicit inflation target. The result was to reduce inflation levels from 7.6% during the years 1955-1988 from when the reserve bank was not independent, down to just 2.7%, after becoming independent, during the period 1989-2000. The latter rate is now considered one of the lowest among industrialized countries. It is obvious that among all OPEC countries, the central bank of New Zealand managed to achieve the lowest inflation rate, especially during the 1990s. What happened during the period of the inflation reduction was that the reserve bank of New Zealand went through a reform that resulted in it being granted with independence and a greater degree of autonomy, leading to low inflation. Specifically, prior to 1989 it used to be an arm of the government. Monetary policy used to be subject to the ministry of finance and therefore the government. As a result, the level of independence was one of the lowest among industrialized countries, while the level of inflation was of the highest. Even then, the relationship between central bank independence was negative, even though the results were the reverse of what is considered optimum, i.e. greater independence, lower inflation. In 1989, the Reserve Bank of New Zealand Act was passed by law. This act codifies inflation targeting and gives more autonomy to the countrys central bank in order to meet its objectives. According to the Act the central banks primary function is: to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices. (Reserve Bank of New Zealand Act, 1989 as quoted in Carlstrom T.C. and Fuerst, S.T., 2006, p.3). The impact of the Act on New Zealands economy and specifically the Reserve Banks autonomy can be seen in figure 2 below, which compares the degree of independence across different time periods and among different countries. The findings of the New Zealand case show that if the country had adopted independence earlier then its average inflation rate would be 3.4% rather than 7.6% that it actually used to be, assuming all other things being equal. Following this assumption, CBI itself would be sufficient to reduce worldwide inflation levels from 5.6% down to 3.8%. Despite the considerable drop in New Zealands inflation rate it is still questionable whether this drop was caused solely by CBI, and it is difficult, if not impossible, to quantify by how much the inflation reduction was due to CBI. Firm conclusions cannot be made yet since the data used in this case is of limited sample size and comparisons would therefore be insufficient. What is true is that the relationship between CBI and inflation is similar across time. Any changes to the strength of this relationship are mostly due to macroeconomic and other factors such as the state of the economy, the state of the government, e.g. democracy, etc. and others that will be explained later in this paper. 3. Measuring Central Bank Independence The degree of CBI for each central bank varies according to the state of each country and to compliance with the law. As Cukierman explains, in developing countries where compliance with the law is poor, a suitable proxy for CBI would be the turnover of central bank governors, whereas in industrialised countries such a proxy would be legal independence. Generally, when the appropriate index of independence is used, the results indicate an inverse relationship between CBI and inflation. However, care should be taken not to mistake legal independence with actual independence, as legal independence is necessary but does not guarantee actual independence; legal independence is a necessary, but not a sufficient condition for a truly independent CB. (Cukierman, A., 2001; 7). Exceptions exist, like developed countries, where legal independence seems to be a good proxy because law is highly complied. For a clearer picture of the effectiveness of CBI on the economy, it is preferred that some variables that make up the CBI index are used in combination, or that some indices are used only for a specific purpose. For instance, legal independence is a good proxy for actual independence in developed countries rather than in developing ones. 3.1 The Cukierman Index of CBI The method that will be used the most in this paper to measure the degree of central bank independence and its relationship with inflation will be Cukierman Index (1992), the most widely accepted and used index for this purpose. Initially, the exact definition of the Cukierman Index according to Siklos, P. (1992; 65) is: An indicator of the degree of autonomy enjoyed by several central banks. Cukierman Index to demonstrate graphically the measures of CBI and inflation during two different decades, namely the 1980s and the 1990s: As can be seen in the above graphs during the 1980s even though CBI was not common across countries, there was a negative relationship between CBI and inflation level. This means that the greater the level of independence of a central bank, the lower the level of inflation within the particular country. It is thus obvious that the correlation between CBI and inflation is negative, whereas the errors overall are not fitted closely on the regression line. We should note however that the decade of 1980s was before central banks especially those within industrialized countries underwent major reforms in their statutes which then allowed them a greater degree of autonomy. During the 1990s as Siklos, P. (2002) explains, most central banks went through a reform, as there was a trend towards CBI. As a result the overall degree of CBI increased and all index values were revised upwards, the government granting more autonomy to central banks, in the belief that greater independence would just be adequate for lowering the level of inflation. However, the relationship between CBI and inflation during the 1990s turned out to be the reverse of that of the previous decade. That is, the correlation between CBI-inflation now became weaker but positive since the regression line on the scatter gram in figure 3b has an upward slope, meaning that inflation increases with the degree of independence. It is hard to explain what was wrong with the findings of the 1990s that caused the correlation to be positive, however one might argue that CBI increased for all countries during the 1990s and so it also reflects the inflation performance of the previous decade, although the more independent central banks have delivered lower inflation levels in the 1980s. Furthermore, the Cukierman Index used is believed to contain some inaccuracies concerning the measurements of the degree on independence and thereafter the relationship of that with inflation because it was extended from the 1980s towards the 1990s in a different way than the one initially specified. For this reason more tests will be carried out to explain and compare the effectiveness of measuring CBI using the Cukierman Index in contrast to other indices developed for the same purpose, for instance Alesina and Summers Index. The Cukierman Index will also be used to test the effect of CBI on inflation in transition economies, based on Ilieva and Gregoriou (2005) paper regarding inflation performance, i.e. average inflation and inflation variance, and CBI in transition economies during the period 1991-2003. 3.2 The determinants of the CBI index The degree of independence varies across countries. This is not only due to factors such as the type of independence of each bank, although the most common is operational independence, the degree of law compliance in each country, and tradition, but some other systematic factors as well. Such factors are described and categorized by Cukierman, who presents some hypotheses on these factors: Hypotheses about the determinants of CBI Initially, it is widely accepted that any form of inflationary bias raises the independence of central banks to the degree that politicians wish to grant to the CB. The main idea behind this concept is that the benefits of delegating monetary policy to an independent central bank will be higher when inflation bias is higher in instances of e.g. employment reaction to inflation shocks. This delegation according to Cukierman helps in preventing the competing political party from taking on activities not favoured by the government. Secondly, Cukierman et al (1992, 2001) make the hypothesis that: the wider are the financial markets and the more elastic the supply of funds to government with respect to the interest rate, the more likely is the CB to be independent. (2001; 19). Additionally, Maxfield (1995) supports that political authorities favour CBI where there is need for funds. When this need is high as he explains, the government delegates more authority to the central bank in order to signal the nations creditworthiness. Finally, the cases of countries that have experienced extremely high levels of inflation in the past, like Germany, Austria, and Brazil, show that such countries are more likely to delegate independence to a central bank so that politicians do not interfere with monetary policy. 3.3 The measurement of the CBI Index Due to the widespread concept that the degree of independence of a nations central bank plays a crucial role upon the policy actions and inflation, Cukierman (1992) presents an analysis of the effects of CBI on inflation and provides various indicators of CBI. However, as he explains, the degree of CBI is determined by several factors from legal to cultural some of which are difficult to measure and quantify, therefore the impact of CBI on inflation varies among countries and there is a certain degree of uncertainty about the level of CBI. As a result, the measurement and the creation of an index of CBI have been based on legal independence, as the degree of CBI also depends on the degree of independence granted to the bank by the law. Despite the variations in the degree of CBI, it can be deduced that a low degree of CBI is linked with higher levels of inflation and inflation variability, while the level of credibility of a central bank with a low degree of CBI will be lower. Cukierman presents three different sets of indicators of CBI; a proxy for legal independence and proxies for the deviations of actual from legal independence. Independence measured under these proxies is limited specifically to the Central banks ability to meet a single objective; price stability. The reason for using several proxies in measuring CBI is because each proxy is a noisy indicator that captures a somewhat different aspect of CB independence (Cukierman, 1992; 370), so using a combination of them reduces this noisiness of the overall measure 3.3.1 Measuring and Coding Legal Central Bank Independence Using a proxy of legal independence is vital in making comparisons with previous studies on the impact of CBI on economic issues because all existing attempts on the features of an independent central bank rely on the banks legal independence. Cukierman presents the indices of legal aspects of CBI by separating into four groups the variables which make for a legally independent central bank. These groups are: Chief executive officer: CEO Policy formulation: PF Final Objectives: OBJ Limitations on lending: LLand codes them by the degree of independence of each group for the central bank of each of the countries included in the study. The main assumptions made are; the central banks whose single objective is price stability are considered to be more independent, so are central banks with stricter limitations on lending from the CB. The coding involves sixteen different variables in a scale from 0 (least independence) to 1 (maximum independence), during the time period 1950-1989, separated into four different decades. Due to the narrow definition of each of the variables used and the consequent lack of precision and multicollinearity problems that may arise, these variables are aggregated into eight legal variables by just calculating the unweighted mean of the codings used. Furthermore, it is necessary to have an additional single index of legal independence for each country to assess the aggregate legal independence of the CB. This index can have two alternatives, the LVAU and the LVAW, that are computed by calculating the average of the codings of the first eight variables as described above. Table 1 in Appendix A shows the ranking of the countries according to the legal independence of their central banks as measured by the LVAU during the eighties decade. The LVAW would also give a similar picture. Looking at the table of results one can see that among the seven most highly-ranked countries four are developed (Switzerland, West Germany, Austria and U.S.), while among the seven least-ranked countries four are less developed (Morocco, Panama, Yugoslavia and Poland). Generally, the top 10% of the rankings is comprised of developed countries, whereas the bottom 10% is concentrated with less developed countries. One should also note that there had been no hyperinflation experienced by developed countries during the 1980s, while some of the Latin America countries have, e.g. Brazil and Bolivia with a rate of 230%. This according to Cukierman may suggest that legal CBI may be neither necessary nor sufficient for low inflation. (1992; 382). 3.3.2 The turnover rate of Central Bank governors as a proxy for actual independence As already explained, the legal status of the central bank is just one of the several determinants of actual CBI. There is no clear systematic indicator of actual CBI, but Cukierman (1992) presents two sets of such indicators. One is based on the actual turnover rate of the central banks governor, and the other is based on the answers given to a questionnaire on CBI. Table 2 in Appendix B shows the CB governors turnover rates for the period 1980-1989. It is assumed that the lower the turnover rate the higher the degree of actual independence. Although the results are chronologically old, it is obvious that turnover rates in less developed countries occupy a range that has never been experienced by developed countries. It is indicative that more than half of the less developed countries have a turnover rate higher than the maximum of the rate of developed countries. It is clear that less developed countries experience higher inflation rates, on the grounds of lower actual CBI. On the other hand, low turnover does not necessarily imply a high level of CB independence on the grounds that a relatively subservient governor will tend to stay in office longer than a governor who stands up to the executive branch. (Cukierman, 1992; 385) Critically assessing the results, since the maximum turnover rate for developed countries is 0.2 (.e. five years) suggests that the turnover proxy may not be effective proxies for actual CBI for the sample of developed countries, whereas this proxy can be considered indicative for the sample of developing countries since these have turnover rates exceeding 0.2. 3.3.3 Central Bank Independence from answers to a questionnaire Another aspect of characterizing CBI is the questionnaire. Under this method, answers were obtained from qualified central bankers from twenty-four countries during the period 1980-1989. The main questions asked covered the issues of; legal independence, final monetary policy objectives, monetary policy instruments, actual independence and its divergence from the law and intermediate targets and their indicators. In coding the variables of the questionnaire, the bank is assumed to be more independent, all other things being equal, if the following hold; the term of office of the CB governor is longer than that of the government, limitations exist on lending from the CB which the government is in no position of altering, and in cases where stock targets exist because these mean that the CB is more free to meet its price stability target. Table 3 in Appendix C shows the ranking of central banks by aggregate indices of independence according to questionnaire responses. The aggregate indices of QVAU and QVAW reflect the law and the way it is implemented in practice respectively, as well as important information about actual independence, and are very similar (à ?=0.99). The rankings agree to earlier studies that central banks of developed countries are more independent. However, the median of QVAU for developed countries, that is 0.6 for Britain and Lebanon, is greater than the median for less developed countries, that is 0.49 for Uruguay, and this contradicts the above findings for legal independence using the LVAU. When measuring the degree of CBI it should be taken into account that the measures used above fail to quantify all the aspects of CBI as some are difficult to quantify. Such aspects are the quality of the banks research department and its standing in comparison to other economic research institutions within the public sector (Cukierman, 1992). Independence is generally higher in countries with highly-developed financial markets according to Cukierman because the supervision of financial institutions is under the authority of the CB, so the larger the market the more wide the span of the CBs authority. 4. Central Bank Independence and Inflation Targeting In this section the impact of central bank independence on inflation, inflation variability and the economy overall is analyzed using a model to test whether CBI can actually lower inflation, and comparing the effects of CBI by using both the Cukierman and the Alesina indices of CBI. Additionally, the costs of achieving lower inflation through central bank independence are also explained. MacCallum, B. (1995) believes that it is strong will that is necessary for proper policy behaviour by central banks, not rules and regulations. A policy maker, i.e. a central banker in this case should act immediately to an inflation shock to restore the problem without letting any sp