Movies Afecting Indian Youth

One Stop for Colleges Education Career ? ? Covers complete IITJEE/AIEEE syllabus ? ? ? Chemistry, Maths and Physics Sections ? Its Free ? Lessons, tests by IIT/NIT toppers 1000+ Questions and Sample tests Last minute preparation and help Minglebox Engineering Prep Free Online Preparation for Engineering with Minglebox Engineering Prep. Cover basic concepts of under â€Å"Section† for Engineering Entrance Exam Preparation with Study material, solved examples and tests prepared by IIT/NIT toppers. 1 Minglebox Engineering Prep Minglebox. om Communication systems Electronic communication refers to the faithful transfer of informationor message (available in the form of electrical voltage and current)from one point to another point. Transmitter, transmission channel and receiver are three basic unitsof a communication system. 2 Minglebox Engineering Prep Minglebox. com Transducer: Any device that converts one form ofenergy into another can be termed as a transducer. Signal: Informa tion converted in electrical form and suitable for transmission is called a signal.Signals can be either analog or digital. Noise: Noise refers to the unwanted signals that tend to disturb the transmission and processing of message signals in a communication system. Transmitter: A transmitter processes the incoming message signal so as to make it suitable for transmis sion through a channel and subsequent reception. Receiver: A receiver extracts the desired message signals from the received signals at the channel output. Attenuation: The loss of strength of a signal while propagating through a medium is known as attenua tion.Amplification: It is the process of increasing the amplitude (and consequently the strength) of a signal using an electronic circuit called the amplifier. 3 Minglebox Engineering Prep Minglebox. com Range: It is the largest distance between a source and a destination up to which the signal is received with sufficient strength. Bandwidth: Bandwidth refers to the frequency range over which an equipment operates or the portion of the spectrum occupied by the signal.Modulator: At the transmitter, information contained in the low frequency message signal is superimposed on a high frequency wave, which acts as a carrier of the information. This process is known as modulation. As will be explained later, there are several types of modulation, abbreviated as AM, FM and PM. Demodulation: The process of retrieval of information from the carrier wave at the receiver is termed demodulation. This is the reverse process of modulation. Repeater: A repeater is a combination of a receiver and a transmitter.A repeater, picks up the signal from the transmitter, amplifies and retransmits it to the receiver sometimes with a change in carrier frequency. 4 Minglebox Engineering Prep Minglebox. com Two important forms of communication system are: Analog and Digital. The information to be transmitted is generally in continuous waveform for the former while for the latter it has only discrete or quantised levels. Every message signal occupies a range of frequencies. The bandwidth of a message signal refers to the band of frequencies, which are necessary for satisfactory transmission of the infor mation contained in the signal.Similarly, any practical communication system permits transmission of a range of frequencies only, which is referred to as the bandwidth of the system. Low frequencies cannot be transmitted to long distances. Therefore, they are superimposed on a high frequency carrier signal by a process known as modulation. In modulation, some characteristic of the carrier signal like amplitude, frequency or phase varies in accordance with the modulating or message signal. Correspondingly , they are called Amplitude Modulated (AM), Frequency Modulated (FM) or Phase Modulated (PM) waves. 5Minglebox Engineering Prep Minglebox. com Pulse modulation could be classified as: Pulse Amplitude Modulation(PAM), Pulse Duration Modulation (PDM) or Pulse Width Modulation(PWM) and Pulse Position Modulation (PPM). For transmission over long distances, signals are radiated into spaceusing devices called antennas. The radiated signals propagate aselectromagnetic waves and the mode of propagation is influenced bythe presence of the earth and its atmosphere. Near the surface of theearth, electromagnetic waves propagate as surface waves. Surface wavepropagation is useful up to a few MHz frequencies.Long distance communication between two points on the earth isachieved through reflection of e lectromagnetic waves by ionosphere. Such waves are called sky waves. Sky wave propagation takes place upto frequency of about 30 MHz. Above this frequency, electromagneticwaves essentially propagate as space waves. Space waves are used forline-of-sight communication and satellite communication. 6 Minglebox Engineering Prep Minglebox. com If an antenna radiates electromagnetic waves from a height hT, thenthe range dT is given by v2RhT whereR is t he radius of the earth.Amplitude modulated signal contains frequencies (? c –? m ), ? c and (? c +? m) Amplitude modulated waves can be produced by application of the message signal and the carrier wave to a non linear device, followed by a band pass filter. AM detection, which is the process of recovering the modulating signal from an AM waveform, is carried out using a rectifier and an envelope detector. 7 Minglebox Engineering Prep Minglebox. com Sample Examples A message signal of frequency 10 kHz and peak voltageof 10 volts is used to modulate a carrier of frequency 1 MHz and peakvoltage of 20 volts.Determine (a) modulation index, (b) the side bandsproduced. Solution (a) Modulation index =10/20 = 0. 5 (b) The side bands are at (1000+10 kHz)=1010 kHz and(1000 –10 kHz) = 990 kHz. A transmitting antenna at the top of a tower has a height32 m and the height of the receiving antenna is 50 m. What is themaximum distance between them for satisfactory communication inLOS mode? Given radius of earth 6. 4 ? 106 m. Solution = v2 *64*105*32 + v2 *64*105*50 = 64 ? 102 ? v10 + 8 ? 103 ? v10 m =144 ? 102 ? 10 m = 45. 5 km 8 Minglebox Engineering Prep Minglebox. com

Explain How the ‘Ansoff Matrix’ Can Be Applied to Help Develop Strategic Marketing Options for an Enterprise.

Explain how the ‘Ansoff matrix’ can be applied to help develop strategic marketing options for an enterprise. What  other analytical tools and techniques can be employed to develop alternative marketing strategies? Table of contents 1. Introduction 2. The Ansoff Matrix 3. Market Penetration 4. Product Development 5. Market Development 6. Diversification 7. Limitations of the Ansoff matrix 8. Other analytical tools and techniques 9. Conclusion 10. References Introduction From my working experience I have discovered, an organisation that knows its shortcomings, and can make relatively strategic decisions to meet the right objectives, will achieve its desire to become successful and remain relevant. Successful organisations in Nigeria always attribute their success to unique strategies which they employed efficiently. Strategies are developed at different levels within an organisation, it therefore follows that objectives (what it wants to achieve) are also set at the different levels. The setting of these objectives will usually produce a discrepancy between what is currently being achieved and what needs to be achieved. Marketing strategies are the explanation of how this gap is going to be closed and the objectives realized. Ansoff matrix is a useful framework for looking at possible strategies to reduce the gap between where the company may be without a change in strategy and where the company aspires to be (Proctor, 1997). The Ansoff matrix which is the focus of this work is one of the models alongside others like the Porter matrix, BCG, SWOT, PESTEL, DPM matrix and Gap analysis etc used by marketers to set objectives which assist strategic decision making. The Ansoff matrix is also used in marketing audits (Li et al, 1999). I will attempt to explain within the limitation of word content, how the Ansoff can be applied to help develop strategic marketing options for an enterprise. Some of these other analytical tools and techniques will also be discussed in the second section this work. The Ansoff Matrix The Ansoff matrix presents the product and market choices available to an organisation. Herein markets may be defined as customers, and products as items sold to customers (Lynch, 2003). This matrix helps companies decide what course of action should be taken given current performance. The Ansoff matrix is also used in marketing audits (Li et al, 1999). The Ansoff matrix entails four possible product/market combinations: Market penetration, product development, market development and diversification (Ansoff 1957, 1989). Ansoff Product-Market Growth Matrix [pic] Source: Ansoff (1957, 1989) A market penetration strategy is used when and organization wants to achieve and increased share in the market. A market development strategy in contrast involves the organization searching for new markets in which to sell its current product. A product development strategy involves identifying new needs within the existing market and developing products to meet these needs while the diversification strategy involves the organisation entering new markets with new products. I will now elaborate on these four strategies to show how they help develop strategic marketing options for an enterprise. Market Penetration Market penetration occurs when a company penetrates a market with its current products. It is important to note that the market penetrations strategy begins with the existing customers of the organization. This strategy is used by companies in order to increase sales without drifting from the original product-market strategy (Ansoff, 1957). Companies often penetrate markets in one of these three ways: by gaining competitors customers, improving the product quality or level of service, attracting non-users of the products or convincing current customers to use more of the company’s product, with the use of marketing communication tools like advertising etc. Ansoff, 1989, Lynch, 2003). This strategy is important for businesses because retaining existing customers is cheaper than attracting new ones, which is why companies like BMW and Toyota (Lynch, 2003) and banks like HSBC engage in relationship marketing activities to retain their high lifetime value customers; same applies to Diamond bank in Nigeria which won the award for Bank of the Year in Thisday Awards 200 9 (Thisday Style magazine). Diamond bank is one of the market challengers in Nigeria’s banking industry and has consistently increased its market share by penetrating the market with targeted special promotions, very low interest rates on loans, and maintaining a highly receptive and comfortable atmosphere in its banking halls. Product Development Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm. The reasons that justify the use of this strategy include one or more of the following: to utilise of excess production capacity, counter competitive entry, maintain the company’s reputation as a product innovator, exploit new technology, and to protect overall market share (Lynch, 2003). Often one such strategy moves the company into markets and towards customers that are currently not being catered for. For example, McDonalds is always within the fast-food industry, but frequently markets new burgers. Another good example of the product development strategy is the constant innovation within the home computer market where products can become obsolete within a matter of years. Frequently, when a firm creates new products, it can gain new customers for these products. Hence, new product development can be a crucial business development strategy for firms to stay competitive. Market Development When a company follows the market development strategy, it moves beyond its immediate customer base towards attracting new customers for its existing products. This strategy often involves the sale of existing products in new international markets. This may entail exploration of new segments of a market, new uses for the company’s products and services, or new geographical areas in order to entice new customers (Lynch, 2003). For example, Arm & Hammer was able to attract new customers when existing consumers identified new uses of their baking soda (Christensen et al, 2005). Lucozade was first marketed for sick children and then re-branded to target athletes. Also, an organisation found that the gel they produced for removing residual oil from heavy machinery could also be used to clean domestic ovens and baking tins. This revelation enabled them to target a new market of professional cooks and baking enthusiast. These are good examples of developing a new market for an existing product. Diversification Diversification strategy is distinct in the sense that when a company diversifies, it essentially moves out of its current products and markets into new areas. It is important to note that diversification may be into related and unrelated areas. Related diversification may be in the form of backward, forward, and horizontal integration. Backward integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same business. Forward integration differs from backward integration, in that the company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company moves into businesses that are related to its existing activities (Lynch, 2003; Macmillan et al, 2000). It is important to note that even unrelated diversification often has some synergy with the original business of the company. The risk of one such manoeuvre is that detailed knowledge of the key success factors may be limited to the company (Lynch, 2003). While diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to note that the track record of diversification remains poor as in many cases diversifications have been divested (Porter, 1987). Scholars have argued that related diversification is generally more profitable (Macmillan et al, 2000; Pearson, 1999). Therefore, diversification is a high-risk strategy as it involves taking a step into a territory where the parameters are unknown to the company. The risks of diversification can be minimised by moving into related markets (Ansoff, 1989). Virgin Cola, Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created by the Virgin Group of UK, to leverage the Virgin brand. This resulted in the company entering new markets where it had no presence before. Limitations of Ansoff Matrix While Ansoff analysis helps in mapping the strategic options for companies, it is important to note that like all models, it has some limitations. By itself, the matrix can tell one part of the strategy story but it is imperative to look at other strategic models like SWOT analysis and PESTLE in order to view how the strategy of an organisation is formulating and might change in the course of its future. For example, the Ansoff analysis of Virgin Cola shows that the brand has been launched in the UK and USA using a market penetration strategy, which essentially reflects that the brand needs to increase its brand recognition (Vignali, 2001). The SWOT analysis conducted by Vignali (2001) showed an opportunity that Virgin Cola could explore diversification into new ranges of Virgin Cola products. PESTEL analysis of Virgin Cola showed that there was need to constantly evaluate the soft drinks industry in all countries, in order to reflect customer trends, thereby allowing the brand to gain market share and also predict trends faster than the competition. Therefore, the steps to be taken while conducting a strategic analysis of an organisation include SWOT analysis, PESTEL and Ansoff matrix as fundamental models of analyses, which should be used in conjunction and not in isolation, to view the complete strategic scenario. Also, recommendations made on the basis on only one of the models are not concrete and lack in depth. While the role of analysis in making strategic choices cannot be undermined, it is imperative to note that judgment plays a crucial role in making critical strategic choices that may change the future of the firm (Macmillan et al, 2000). Lastly, the use of Ansoff matrix as a marketing tool may not be really useful as the matrix is critical for analysing the strategic path that the brand may be following, and does not essentially identify marketing options. Other Analytic Tools As mentioned earlier Ansoff matrix is not all exhaustive and so there are other analytical tools and techniques which are valuable to marketers for strategic decision making and can actually be used alongside Ansoff matrix. I will just throw some light on SWOT, BCG matrix and Porter’s Generic Strategy. SWOT Swot analysis is a simple framework for generating strategic alternatives from a situation analysis. Swot (sometimes reffered to as TOWS) stands for Strengths, Weaknesses Opportunities and Threats. It is applicable to either corporate level or business unit level and frequently appears in marketing lans. Its advocates say it can be used to gauge the degree of ‘fit’ between the organisation’s strategy and its environment, and to suggest ways suggest ways in which the organisation can profit from strengths and opportunities and shield itself against weaknesses and threats (Adams, 2005). The internal and external situation analysis can produce a large amoun t of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspect of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats. Because SWOT is such as familiar and comforting tool, many students use it at the start of their analysis. This is a mistake. In order to arrive at a proper SWOT appraisal, other analyses need to be carrier out first. BCG Matrix BCG matrix is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003; Cipher 2006): it can be used to classify product portfolio in four business types based on four graphic labels including Stars (Stars are leaders in high growth markets. They tend to/should generate large amounts of cash but also use a lot of cash because of growth market conditions) Cash Cows (), Question Mark (Question Marks have not achieved a dominant market position, and hence do not generate much cash. They tend to use a lot of cash because of growth market conditions) and Dogs (Dogs often have little future and are big cash drainers on the company as they generate very little cash by virtue of their low market share in a highly low growth market). [pic] According to experts (Drummond & Ensor 2004; Kotler 2003; McDonald 2003), surplus cash from cash cow products should be channeled into Stars and Questions in order to create the future Cash Cows. The BCG matrix can be used to determine what priorities should be given in the product portfolio of a company; to classify an organisation’s product portfolio according to their cash usage and generation; and offers management available strategies to tackle various product lines. It is based on two dimensional variables: relative market share and market growth. They often are pointers to healthiness of a business (Kotler 2003; McDonald 2003). In other words, products with greater market share or within a fast growing market are expected to wield relatively greater profit margins. Porter’s Generic Strategy Companies can achieve competitive advantages essentially by differentiating their products and services from those of competitors and through low costs. Firms can target their products by a broad target, thereby covering most of the marketplace, or they can focus on a narrow target in the market (Lynch, 2003). According to Porter, there are three generic strategies that a company can undertake to attain competitive advantage: cost leadership, differentiation, and focus. [pic] Source: Porter (1985) Cost Leadership; The companies that attempt to become the lowest-cost producers in an industry can be referred to as those following a cost leadership strategy. The company with the lowest costs would earn the highest profits in the event when the competing products are essentially undifferentiated, and selling at a standard market price. Companies following this strategy place emphasis on cost reduction in every activity in the value chain. Differentiation; When a company differentiates its products, it is often able to charge a premium price for its products or services in the market. Some general examples of differentiation include better service levels to customers, better product performance etc. in comparison with the existing competitors. Porter (1980) has argued that for a company employing a differentiation strategy, there would be extra costs that the company would have to incur. Such extra costs may include high advertising spending to promote a differentiated brand image for the product, which in fact can be considered as a cost and an investment. Focus; Porter initially presented focus as one of the three generic strategies, but later identified focus as a moderator of the two strategies. Companies employ this strategy by focusing on the areas in a market where there is the least amount of competition (Pearson, 1999). Organisations can make use of the focus strategy by focusing on a specific niche in the market and offering specialised products for that niche. This is why the focus strategy is also sometimes referred to as the niche strategy (Lynch, 2003). Therefore, competitive advantage can be achieved only in the company’s target segments by employing the focus strategy. The company can make use of the cost leadership or differentiation approach with regard to the focus strategy. Conclusion In conclusion, it has to be restated that the Ansoff matrix is a useful, though not an exhaustive, framework for an organisation’s objective setting process and marketing audits. The differences in strategic choices of organisations can often be attributed to the type of market in which the company operates. Changes in business environment play a crucial role in the strategic options that an organisation may pursue over its life stages. There are risks associated with all of the four strategic options entailed in the Ansoff matrix. Market penetration is generally considered as a low risk strategy while diversification, on the other hand, is deemed as a high risk growth strategy as it involves moving simultaneously into new products and new markets. Diversification remains a popular strategic option for firms in today’s competitive business arena. Lastly, Ansoff matrix as a strategic model has certain limitations. The use of SWOT and PESTEL analysis is recommended, along with Ansoff analysis, to be able to capture a holistic view of the strategic scenario of an organisation. I would have elaborated more on other analytic tools but for the word limit given me. References Ansoff Analysis. Website. http://university- essays. tripod. com/ansoff_analysis. html. 27th March 2009 Ansoff, I. H. (1957), Strategies for diversification, Harvard Business Review, Vol. 35, No. 2, p. 113-124. Ansoff, I. (1989), Corporate Strategy, rev. edn, Penguin, Harmondsworth BCG Growth-Share Matrix. Website. http://university- essays. tripod. com/bcg_growth_share_matrix_boston_consultin g_group. html. 3rd March 2009 Christensen, C. & Cook, S. & Hall, T. 2005), Marketing malpractice: The cause and the cure, Harvard Business Review. Hill, W. L. C. & Jones, R. G. (2007), Strategic Management: An Integrated Approach, 7th ed. , Houghton Mifflin Company, Boston: New York. Li, S. & Duan, Y. & Kinman, R. & Edwards, J. S. (1999), A framework for a hybrid intelligent system in support of marketing strategy development, Marketing Intelligence & Planning, Vol. 17, No. 4. Lynch, R. (2003), Corp orate Strategy, 3rd ed. , Prentice Hall Financial Times. Macmillan, H. & Tampoe, M. (2000), Strategic Management, Oxford University Press. Module 1, Unit 2, (2006) MN7002/D, Strategic Marketing, (ed. 10th), England. Pearson, G. (1999), Strategy in Action, Prentice Hall Financial Times. Vignali, C. (2001), Virgin Cola, British Food Journal, Vol. 103, No. 2. Porter, M. E. (1987), From competitive strategy to corporate strategy, Harvard Business Review. Porter’s Generic Strategies. Website. http://university-essays. tripod. com/porters_generic_strategies. html. 3rd March 2009 Proctor, T. (1997), Establishing a strategic direction: a review, Management Decision, Vol. 35, No. 2. Product-Market Growth Matrix. Website. ttp://www. businesspme. com/uk/articles/strategy/61/Product- Market-Growth-Matrix. html. 15th February 2009 Osime R. (2009), Thisday Awards ’09, Thisday Magazine, Volume 14: No. 5026 SWOT Analysis. Website. http://www. netmba. com/strategy/swot/ 27th March 2009 SWOT Analysis. Website. http://university- essays. tripod. com/swot_tows_analysis. html. 3rd March 2009 Thompson, A. A. & Strickland, J. A. (2003), Strategic Management: Concepts and Cases, Thirteenth ed. , McGraw-Hill. What is Ansoff Analysis? Website. http://www. coursework4you. co. uk/ansoff. htm. 15th February 2009

Maximizing Profits in Market Structures Essay

Profits in Market Structures Market Structures are described as a particular relationship between the buyers and the sellers of goods and services in a specific market (Mathias, 2000). Three different types of market structures are competitive markets, monopolies, and oligopolies. Each of these market structures has a particular set of characteristics that identify it and separate it from the others. These categories are also separated by the way they each use pricing and output to calculate and maximize their profits. Another difference between these three categories is the presence of barriers, which may be present to encourage current companies to exit, as well as new comers to enter that market. Also, each of these three structures has a different effect on the economy, some having more control on the market than others. With all these differences the specific market structures all have one thing in common, they all rely on supply and demand to determine how to maximize their profits. Competitive markets have two primary characteristics that separate it from other market structures. The first characteristic is that, within a competitive market, there are a large number of buyers and sellers. Second is that the product being sold is the same among all companies, making the products completely interchangeable. These factors make the market competitive by insuring that no single buyer or seller can control the market price. Therefore, in order for companies within a competitive market to maximize profits, they must maintain an equilibrium between the price charged for a product and quantity that they produce. This means that a company must take the price being charged for a product and subtract the cost of making the product to figure out where they are equal. As the price of a product in a competitive market is controlled by the market as a whole, the seller must adjust its output to maintain maximum profits. This is important because the company’s revenue is in direct correlation with the price, so if the price goes up $1. 00 per unit then the revenue also will go up the same amount. For example, if a product has a fixed cost of $1. 0, and the variable cost of $3. 00 and the product sells for $5. 00 then the company has to adjust its output to balance that amount, so that it does not cost over $5. 00 for each product sold. One factor that can affect the output of a product, is the lack of barriers that are present for anyone wanting to begin or exit a company. If the amount of sellers change but the demand does not then current companies will need to decrease the output or risk the price dropping below the profitable levels. The competitive markets can have a positive impact on the economy because the competition helps control the cost of products. If there was little or no competition, then companies would have the ability to raise prices as high as they wanted to, especially in the case of items that are necessities (Mankiw, 2007). The characteristics of a monopoly are first, that there is only one company selling a product and there are no substitutions. Second, there is no competition, the product is exclusive to one company. Third, in a monopoly the company completely controls the pricing of its products and can charge as much as they believe a customer will pay (Mathias, 2000). In contrast to a competitive market, a monopoly can chose what to charge for its product. However, the price must be set according to what consumers are willing to pay, while still maintaining a profitable level of production. It is important to control the output of product so, the price must be set to where the company will still be able to sell a large amount of product while maximizing its profits . There are substantial barriers to entering a market that has a monopoly. One barrier is the inability to compete in the market that is controlled by one company. A small business starting out in completion with a large monopoly would incur substantial costs to begin production and they would have to increase their prices to make a profit. This could also be a problem if the monopoly holds the rights to the raw materials that it takes to make a product. Therefore, entering a market that is controlled by a monopoly is very difficult. However, it is possible for a market to be controlled by a small number of companies, similar to the way that a monopoly controls a market. The economic impact that monopolies have can be outrageous prices or limited availability of goods and services to many people (Mankiw, 2007). An Oligopoly is when a limited number of companies control a specific market, with little competition (Mathias, 2000). Some characteristics of an oligopoly are that the companies all make the same or similar items, so they are substitutable, and there are only a few companies that produce this good. As there are a limited amount of producers these oligopolies are also able to set the price of their goods, using things like advertisements and warranties for competition between businesses. Because there are only a few companies making a product the members of an oligopoly have to control the production of their goods in order to control the pricing. If one of the companies decides to increase production then there will be an abundance of supply without the necessary increase in demand. This means that the cost of the product will have to go down to try to increase demand. These companies have to maintain a steady level of output in order to maintain price, giving them the best profits. The companies that are in this small circle of businesses, try very hard to erect barriers in front of anyone who may think about entering their market. By stopping the emergence of new companies the oligopolies can continue to control the market. The affect that oligopolies have on the economy is the ability to control pricing and supply of products, similar to the impact that a monopoly has (Mankiw, 2007). In conclusion, each market structure plays a role in the economy with the focus of these companies centering on profits. They monopoly can be beneficial if the lowest price for consumers comes from having only on producer but in many cases a monopoly means high prices and limited supply. An oligopoly does have less control over pricing only because they are sharing the demand and antitrust laws prevent them from gathering together as one monopoly, to maximize profit. The competitive market is the most economically friendly market because it has to compete to get customers and this helps keep prices affordable and does not limit the availability of goods to the public.

Compassion Fatigue Essay Example | Topics and Well Written Essays - 250 words

Compassion Fatigue - Essay Example The nurse would have to be compassionate and tailor the care given in a manner that suits the patient. In addition, the nurse ought to establish a relationship with the patient as such would fasten the recovery process. If the nurse fails to get emotional advice from her peers, she would soon be a victim of compassion fatigue from excessive exposure to such patients. Compassion fatigue is prevalent among inexperienced professionals. Nurses are prone to compassion fatigue due to their care giving roles in health institutions. However, this should not discourage nursing students from pursuing their careers because the condition is treatable. Nurses may seek professional advice from peers in the case of mild compassion fatigue. If the condition is severe, the nurse can seek medical help to mitigate the likelihood of depression. Hospice nurses are vulnerable to compassion fatigue due to their job description. They are responsible for offering palliative care to patients who are terminally ill, and likely to succumb to the illness. However, hospice nurses may engage in professional and social organizations where they interact with like-minded people and brainstorm. In addition, they may exercise to build on their physical and mental strength. It is prudent that hospice nurses create boundaries between work and home responsibilities to ensure that external parties are not affected. Showalter, S. (n.d.). Compassion Fatigue: What Is It? Why Does It Matter? Recognizing the Symptoms, Acknowledging the Impact, Developing the Tools to Prevent Compassion Fatigue, and Strengthen the Professional Already Suffering From the Effects. American Journal of Hospice and Palliative Medicine, 239-242. Retrieved March 19, 2015, from

Personal Responsibility Essay Example | Topics and Well Written Essays - 1250 words

Personal Responsibility - Essay Example Student B is saying, â€Å"The exam was very difficult for me, and I will not be surprised if I get an F, but, I should have known better and spent more time revising instead of playing video games†. Both cases are of course hypothetical; nevertheless they personify common phenomena in schools wherein some students take responsibility of their actions (B) and others like A want to abscond this. Ultimately, by accepting responsibility B has identified the problem hence has an idea of how to rectify the situation in posterity. â€Å"A†, on the other hand, might fail more exams in the future since he is not willing to take responsibility for his inactions and blames a third part whose errors he cannot rectify. This essay discusses the role of personal responsibility in students, as well as some of the strategies they may use to improve their chances of achieving success in their various field of study. It is the onus of every student to ensure they come up with the best pl ans and strategies, so they can guarantee their academic success. For a student to come up with these strategies, it is imperative they put into consideration first several factors, have the strategies they want to use been used before in similar circumstances? If so, were they successful? They could also consider the resources in terms of time and academic resources, so they make strategies, which they will be able to execute from within their budgeted time, and other resources. The past is also an important consideration when it comes to strategizing; before one makes any plans to improve themselves, it is crucial they consider what lead to their lackluster or mediocre performance in the past. A student wishing to see real improvement must first do a thorough post Mortem of the past performance, in order to identify the weak points in past plans and avoid repeating them in the new strategy. Student may apply the following are strategies to improve their performance; They should ta ke to account the learning styles which provide them with the best results this is the individuals preferred orientation toward learning (Bulut andYukselturk, 2007). Some students learn through class discussion others through listening in class and other by active research where they seek out the answers for themselves; the student should hence apply whichever technique, or combination of techniques, that works for them and hence adapt their plan to the most suitable learning theory for the best results. The student directly takes personal responsibility for their performance through setting personal goals, since they dictate, autonomously, the kind performance they wish to achieve. Operating in any situation without predetermined goals is analogous to running a race without a finish line. As such goals are a vital aspect of any accomplishment in academic pursuits, they can be measured in a number of ways depending on individual students such s Grades, or personal fitness and other forms of self-improvement like, read two books a week. Goals should be specific, measurable, and students should write them down and ensure they are in a place where they are seen daily, so they are a constant reminder. One should also have both long-term and short-term goals, the latter, which help them evaluate their

An examination of the efficacy of Behavioral Finance Essay

An examination of the efficacy of Behavioral Finance - Essay Example 383) -The weak form hypothesis asserts that stock prices already reflect all information that can be derived by examining market trading data such as the history of past prices, trading volume, or short interest. Numerous papers have demonstrated that early identification of new information can provide substantial profits. Insiders who trade on the basis of privileged information can therefore make excess returns, violating the strong form of the efficient market hypothesis. Even the earliest studies by Cowles (1933,1944), however, make it clear that investment professionals do not beat the market. It has already been stated that an efficient market is one where the prices of securities fully reflect all available information, but then what are the sufficient conditions for capital market efficiency? In an idealized world, such conditions would be The debate about market efficiency has resulted in thousands of empirical studies and literature attempting to determine whether particular markets are in fact ‘efficient’, and if so to what degree. In fact, the majority of studies and researches of technical theories have gone to the result that it is difficult to predict prices. Moreover, the random walk theory indicates that price movements will not follow any trends and so by knowing the past price movements it’s not possible to predict the future price movements. All these state that markets are in fact efficient. However, researchers have also exposed many stock market anomalies that seem to be inconsistent with the efficient market hypothesis. Trading strategies seem to be widespread among fund managers and there is little evidence that they would generate excess returns in practice (Malkiel, 2003). Evidence proof that the use of trading strategies might be closely related to behavioural anomalies. It is impossible to consistently make abnormal returns using a

Observational films - Corporation Documentary Research Paper

Observational films - Corporation Documentary - Research Paper Example Furthermore, in order to assess the personality of the corporation, there is a checklist employed which uses diagnostic criteria and standard tools of psychologists. These standards are applied to ensure that the organizational principles are human. But the organizational principles that are applied are highly self-interested, amoral, deceitful, and they breach the legal and social standards just to get the profits. The organization does not even suffer with guilt. â€Å"The Corporation† starts with a fast juxtaposition of familiar company logos and specific images, which supports the narration. And narration is giving you facts about the content. I realized that after the first couple of sentences my focus was so much on the visuals that the second time I watched it, I noticed I had missed some key information from the narrative. I understand that the filmmakers wanted to have gripping beginning and wanted to hit you with the important, interesting facts however I rather have something (visuals) that would allow me to think about the narration more. Also I would like the narration to be a bit slower. The bad apple metaphor is a good way to begin. It is a good example and preparation of what the documentary will sum up. It’s true that a big portion of the documentary is using archive footage to support the audio. Even though I found the selection of archival footage very specific and extraordinary, sometimes it gets a bit too literal. First time we see a face in the movie, it ends up with a good twist. The man (Ira Jackson) who is looking right at the camera (audience) finishes with a joke. This part gives you a brief break from all the â€Å"serious† stuff and hints out that this â€Å"boring† documentary about corporations will not be as tedious and boring as it seems to be. Besides having the subject looking right at

Heart Cases Essay Example | Topics and Well Written Essays - 750 words

Heart Cases - Essay Example The left foot is erythemic (red), edematous (swollen), very warm and painful to touch, consistent with cellulitis (inflammation of the subcutaneous tissue) You observe infected puncture wounds over the dorsal surface and lateral malleolus. The patient admits to having a heroine addiction and injecting himself multiple times in these areas. During an examination of the patient you carefully assess heart sounds and discover a low murmer at the lower left sternal border. You suspect infective endocarditis and admit the patient to the hospital for intravenous antibiotic treatment.. 3. Trace the pathway bacteria must travel, naming the blood vessels, to reach the point of infection in the heart. The bacteria travels from the leg through the posterior tibial vein, anterior tibial vein, popliteal vein, great saphenous vein, common iliac vein, inferior vena cava and into the heart. 4. If a clump of bacteria or a blood thrombus should break off the site of infection in the heart, where would this embolus travel and what condition could it cause? Trace the path and name the vessels. The embolus would move into the right ventricle and through the pulmonary vein. Deep vein thrombosis A 58-year-old African American male was admitted from a nursing home with a chief complaint of being lethargic and not acting appropriately. The patient stated that his legs hurt, and they had been hurting for a long time. Hemolytic Anemia occurs due to hemolysis, the abnormal breakdown of red blood cells. It is a condition in which red blood cells are destroyed and removed from the bloodstream before their normal lifespan is over. 4. Describe the life cycle of a red blood cell. How are old and damaged erythrocytes disposed of and recycled? The life cycle of a mature erythrocyte is about 12O days. As these cells do not have a nucleus, they cannot split or synthesize new components. Therefore, the cells degenerate owing to damage or aging. At the end of its life, it returns to

Report Essay Example | Topics and Well Written Essays - 500 words - 14

Report - Essay Example Electronic Retail Company, Strategy is the direction and scope of the firm over the long term preferably over five years which achieves advantage in changing environment through its configuration of resources and competencies with the aim of full filing stakeholder expectations (Kaplan & Norton, 2001, pg.7). This explains why the past 5 years of ERB Ltd as been put under critical discussion and analysis (Crosetto,2005,pg.38). The Strategic position of ERB Ltd. considers the influence on strategy on the external environment, the organisation’s goals, culture and strategic capability, which will include the resources and competences of the organisation (Abrams, 2003, pg.121). This is significant towards its continued competitive strategies in this dynamic business society influenced by globalization. The ERB Ltd. strategic position is concerned with the impact on strategy of the macro environment, internal resources and competences, expectations and influence of stakeholders (Abrams, 2003, pg.258). The Macro environment factors and competencies of ERB Ltd. are studied using Pestle, Swot, Porter’s 5 Forces, Strategic Capabilities Analysis and Stakeholder mapping. Our company follows cost leadership strategy. The reason of our choice is that we achieve to be supplied with products from manufacturers at lower cost. In addition, we do our best to offer the products to customers at the lowest possible price (Schermerhorn, 2010, pg.223). Since we are focussed on selling quality products and offering outstanding customer service to our clients, marginal cost pricing technique is paramount in respect to our continued profit margin. As accost leadership strategy believer, the company observes the pricing behaviour of other firms and set prices slightly below the market average thereby attracting more customers and realizing greater sales (Hill & Jones, 2010, pg.157). ERB Ltd reconciles the idea of affordability of their products with their relatively cheaper

Euro Disney Case Essay Example for Free

Euro Disney Case Essay The success of a business, especially immediately after establishment depends on various factors. Branding and goodwill form some of these major factors. It is worth noting that branding points to the value that customers attach to a given product or service and is often informed by their experience or perception that they have about the name as well as the known history of the producer or the service provider. A business on the other hand enjoys goodwill if it uses a brand name whose reputation has already grown and this growth is not only depicted at local level but both national, international and even global levels. Despite enjoying the fore going, EuroDisney did not perform well during its first year of operation for various reasons. Factors That Contributed to Euro-Disney’s Poor Performance during Its First Year of Operation At the outset, the hotel rooms were so much overpriced and to such an extent that staying overnight was out of question for most of the families around. In addition, poor marketing strategies which were very evident at the time as well as their ill advised source of funding from French banks were all to the EuroDisney’s disadvantage. To add to the bargain was the fact that an unforeseen combination of transatlantic airfare wars and currency movements often boiled down to trips to places like Orlando being cheaper while good weather was guaranteed and beautiful Florida beaches were within reach in Orlando. It therefore bears noting that all these factors as well as the ethnocentrism and negative publicity given by the hostility from the French people against the Disney idea right at the projects planning phase, greatly affected the performance of EuroDisney during its first year in operation (Keegan Green, 2002). The role played by ethnocentrism in the story of Euro-Disney`s launch Ethnocentrism is defined as the tendency to believe and perceive one’s cultural or ethnic group to be centrally important than all others. This is evident in the launch of EuroDisney with French visitors staying away while projections had it that they would make 50percent of the attendance figures. The French perceived the EuroDisney in a very different perspective, as depicted this was viewed as American imperialism. They clung to their culture, and as the article puts it, French culture had its own lovable cartoons and characters that included the Asterix, the helmeted and a pint-sized Gallic warrior which EuroDisney did not provide. As a result of the hostility among the French to the Disney ideas as evidenced at the planning of the EuroDisney project, there was a bad publicity that was given about the project to the various stakeholders (Keegan Green, 2002). Why the experience in France was not transferable to Hong Kong Though the EuroDisney had a nasty experience in France, the knowledge and experience acquired may not be transferable to China’s Hong Kong. On the same note, the experience in France was purely informed by cultural difference between Americans and the French. Needless to say, the case may not be the same between the Chinese and American people. It is however notable that Business experience is usually transferable only if it is informed by business related concepts such as the forces of demand and supply which is not the case in EuroDisney. Lastly, owing to the differences in size between the Disney in Hong Kong and that in France, the effects of decisions may as well be considered to be well out phase with each other. Reference Keegan, W. J. , Green, M. C. (2002). Global marketing management. New Jersey: Prentice Hall.

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