Central bank independence and disinflationary credibility: a missing link?

Posen, Adam S.

doi:10.1093/oxfordjournals.oep.a028650

Cited by 169 publications

(81 citation statements)

References 24 publications

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“…found no evidence for the "credibility bonus" of the independent CB. No relationship between independence and credibility was found by Posen (1998) either. In his famous study, he tested several hypotheses that could be empirically verified and found no evidence that greater independence leads to greater credibility.…”

Section: Introductionmentioning

confidence: 79%

Central Bank Credibility: Determinants and Measurement. A Cross-Country Study

Mackiewicz-Łyziak

2016

Acta Oeconomica

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J. MACKIEWICZ-ŁYZIAKThis paper proposes a new measure of central bank credibility -the credibility index calculated on the basis of the key determinants of central bank credibility. The index is compiled for 9 countries: the Czech Republic, Hungary, Slovakia, Poland, Chile, Brazil, Turkey, United Kingdom and Sweden , for the years 1999-2007. The results are cross-checked with other credibility measures based on infl ation expectations of two groups of economic agents. The analysis demonstrates that the credibility index may be considered a relevant and consistent credibility measure.

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Section: Introductionmentioning

confidence: 79%

Central Bank Credibility: Determinants and Measurement. A Cross-Country Study

Mackiewicz-Łyziak

2016

Acta Oeconomica

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“…In addition, using an AR model for consumer price inflation and the coefficients on lagged inflation as a measure of model of inflation in Gali and Gertler (1998), one would expect the forward-looking component in firms' pricing decision to increase and thus the degree of nominal inertia to decline. It is also puzzling (Posen (1998)) that, even when controlling for nominal wage rigidities, independence still increases sacrifice ratios and that the empirical evidence does not support the postulated positive link between independence and nominal rigidities. Bleaney (1996) is also unable to identify any relationship between central bank independence and various measures of wage-bargaining structures while Walsh (1995) actually finds that high initial rates of inflation reduce sacrifice ratios in the EU countries, once the negative effect of independence is allowed for.…”

Section: Inflation Central Bank Independence and Sacrifice Ratiosmentioning

confidence: 95%

Sacrifice Ratios and the Conduct of Monetary Policy in Conditions of Low Inflation

Andersen¹,

Wascher

1999

SSRN Journal

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Fax: +41 61 / 280 91 00 and +41 61 / 280 81 00This publication is available on the BIS website (www.bis.org). The focus of monetary policy has shifted markedly over the past 15 years away from attempts to fine tune the economy towards the longer-run goal of attaining price stability and creating the necessary conditions for sustainable economic growth. In an attempt to minimise the costs of such a transition, central banks have become more independent and monetary policy more transparent, changes intended to increase the credibility of monetary policy and to reduce short-run sacrifice ratios. However, concerns have been expressed that an environment of price stability and independent central banks may instead lead to higher sacrifice ratios and, perhaps, even higher rates of structural unemployment, because of the increased importance of nominal and real rigidities at low rates of inflation. © Bank forThe purpose of this paper is to analyse whether there are any grounds for such concerns. We do so by estimating sacrifice ratios for 19 industrialised countries, using three alternative approaches: (1) estimating aggregate supply curves; (2) estimating structural price and wage equations; and (3) comparing actual changes in inflation with changes in standard measures of output and labour market slack. The empirical evidence shows that, as the average rate of inflation for the 19 countries in our sample has fallen from 8% to 3½%, the average sacrifice ratio has increased from around 1.5 to about 2.5. Although sacrifice ratios appear to have risen in virtually all countries, the increases tend to be smallest in those that have adopted measures to deregulate labour and product markets and in countries where the central bank has adopted explicit inflation targets. However, the empirical evidence also reveals that point estimates of the sacrifice ratios for individual countries are quite sensitive to the econometric method adopted. This last result suggests that identification of the sources of higher sacrifice ratios remains elusive and thus that one should be cautious about drawing strong implications for monetary policy from these kinds of estimates.* We gratefully recognise comments on an earlier draft by J D Amato, T Andersen, R Filosa and participants at seminars at the BIS, the Swiss National Bank and the Bank of Greece.

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“…As principais modificações na legislação de bancos centrais para torná-los mais independentes podem ser sumariadas em três pontos básicos (Posen, 1998): (i) capacidade do banco central em rejeitar a monetização da dívida pública; (ii) garantia de estabilidade para o mandato do presidente do BC; e (iii) prioridade de objetivo para a estabilidade de preços. O primeiro ponto está associado ao argu-mento dominante na literatura de que um dos principais elementos responsáveis pela inflação de longo termo é o uso da receita de senhoriagem pelo governo.…”

Section: Introductionunclassified

Independência do banco central e equilíbrio fiscal: algumas observações para o caso brasileiro

Mendonça

2006

Rev. Econ. Polit.

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Equilibrium: some observations for the Brazilian case. The objective of this paper is to analyze the main theoretical arguments for the analysis of the conduction of monetary policy on the fiscal side. Besides this, an analysis is made of the possible effects on the fiscal balance from the conduction of the monetary policy in the search for price stability after the Real Plan and due to an increase in the central bank independence (CBI) in the Brazilian case. The findings denote that the strategy for the conduction of the adopted monetary policy and the increase in the degree of CBI did not contribute to an imrovement in the fiscal balance.Key words: central bank independence; inflation; public debt. JEL Classification: E58; E63. INTRODUÇÃOCom o objetivo de aumentar a credibilidade na condução da política monetária e neutralizar os problemas potenciais oriundos do caso de dominância fiscal, a proposição de independência do banco central (IBC) tem recebido apreciá-vel atenção tanto por teóricos quanto por responsáveis pela política monetária. As principais modificações na legislação de bancos centrais para torná-los mais independentes podem ser sumariadas em três pontos básicos (Posen, 1998): (i) capacidade do banco central em rejeitar a monetização da dívida pública; (ii) garantia de estabilidade para o mandato do presidente do BC; e (iii) prioridade de objetivo para a estabilidade de preços. O primeiro ponto está associado ao argu-

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Central bank independence and disinflationary credibility: a missing link?

Cited by 169 publications

References 24 publications

Central Bank Credibility: Determinants and Measurement. A Cross-Country Study

Central Bank Credibility: Determinants and Measurement. A Cross-Country Study

Sacrifice Ratios and the Conduct of Monetary Policy in Conditions of Low Inflation

Independência do banco central e equilíbrio fiscal: algumas observações para o caso brasileiro

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