This study investigates, using data from 1960 to 1998, whether the nature of political regimes can help explain cross-national and intertemporal variations in the cost of disinflationary policies, as measured by the sacrifice ratio. We show that, "ceteris paribus", right-wing governments have lower costs of disinflations than left-wing governments. We argue this is due to a superior credibility, resulting from their stronger anti-inflation reputations. In addition (and in marked contrast to previous studies), we find that when we control for political regimes, trade openness, and other standard factors in this literature, central bank independence has no significant effect on the sacrifice ratio. Copyright (c) 2008 The Ohio State University.

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Many economists helped to lay the groundwork for the Federal Reserve. Some did important work analyzing the problems of the National Bank System and arguing for formation of a central bank in economics journals. At least as importantly, if not more so, some economists took an active role in the reform movement and provided help and advice with the actual Congressional bill. Among these are J. Lawrence Laughlin, who chaired a group that actively raised support for the Federal Reserve Act in Congressional districts, and H. Parker Willis, who served as an expert for the subcommittee which wrote the original draft of what became the Federal Reserve Act. More broadly, this episode illustrates the impact that intellectuals and ideas can have on actual events; the analysis contemporary economists did in academic journals and in more political activities before and after the panic of 1907 guided the actual formation of a working central bank (JEL B10, N21).

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