Analysis Results for the Independence of the Central Banks With Fuzzy Logic

Analysis Results for the Independence of the Central Banks With Fuzzy Logic

DOI: 10.4018/978-1-7998-1643-0.ch008

Abstract

This chapter aims to measure the independence of the central banks of E7 economies. For this purpose, six different criteria are developed by considering similar studies in the literature. In the analysis process, fuzzy DEMATEL method is used to weight these criteria. On the other hand, both fuzzy TOPSIS and fuzzy VIKOR approaches are taken into consideration to rank E7 economies regarding the central bank independence. The findings show that preventing giving loan to the government is the most important factor while participating rate in the financial market has the weakest importance in the criteria set. It is recommended that central banks in E7 economies should not give loans to the government since this situation has a negative influence on the decisions of local and foreign investors. In addition to this issue, it is also concluded that Indonesia (A4) has the best performance in the E7 economies while Mexico (A5) has the worst performance in the central bank independency among the countries.
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Identifying The Weights Of Criteria

In the first step of this analysis, fuzzy DEMATEL approach is taken into consideration in order to weight the criteria. Within this framework, Tables 1 and 2 give information about the linguistic variables of the impact-relationship degrees and linguistic scales.

Table 1.
Linguistic variables of the impact-relationship degrees
Influence LevelTriangular Fuzzy Numbers
No (N)000.25
Low (L)00.250.5
Medium (M)0.250.50.75
High (H)0.50.751
Very High (VH))0.7511

Source: Khorasaninejad et al. (2016)

Table 2.
Linguistic scales for rating of alternatives
DefinitionTriangular Fuzzy Numbers
Worst (W)002.5
Poor (P)02.55
Fair (F)2.557.5
Good (G)57.510
Best (B)7.51010

Source: Rostamzadeh et al. (2015)

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