The effects of Central bank independence on the liquidity management in oil exporting countries (1994-2008)

The independence of central bank is important because if this bank turns into the financier of government budget deficit, this will be in conflict with its main responsibility which is the control of inflation and keeping of price stability through money supply control. In this paper, we study the effects of central bank independence on the liquidity management system of Iran and 21 oil exporting countries during 1994-2008. The Panel data econometric method has been applied. The GMT index has been used in this study which is one of the most inclusive indices in study of central bank independence. The results for low independent central bank countries, explain that these countries use expansionary policies in the framework high liquidity growth when oil price increases, while, the results for countries with higher independent central banks, show these countries are able to use controlled monetary policies over oil price increase.