ABSTRACT
Most Middle Eastern and North African (MENA) countries have either adopted or are in the process of adopting economic and fi nancial market reforms that include the conduct of monetary policy and the role of central banks in the process of monetary policy making.1 In this respect, the independence of central banks in relation to political authorities is considered an important aspect of any institutional monetary reform, as evidenced by central bank reforms conducted in Europe, Latin America and the transition economies in Europe (Walsh, 1995). The modern theory of optimal monetary policy was developed by Kydland and Prescott (1977) and Barro and Gordon (1983) where central banks maximise social welfare given an expectations-augmented Phillips curve.
