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Central Bank Behavior, the Institutional Framework, and Policy Regimes: Inflation Versus Noninflation Targeting Countries

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  • Pierre L. Siklos

Abstract

This article estimates central bank reaction functions for 20 OECD countries. It bridges the gap between the Taylor reaction function literature and the political-economy literature. Central banks react to both inflation and the output gap. Moreover, inflation-targeting countries have been able to reduce nominal interest rate to a greater extent than have non-inflation-targeting countries. Countries with fixed exchange rates react more strongly to inflation but not at all to the output gap, unlike countries with floating rates. Political influences also seem relatively more important in fixed exchange rate countries. Central bank independence also helps reduce nominal interest rates. (JEL "E58", "C31", "C32", "C53") Copyright 2004 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 22 (2004)
Issue (Month): 3 (07)
Pages: 331-343

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Handle: RePEc:bla:coecpo:v:22:y:2004:i:3:p:331-343

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Cited by:
  1. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6070, C.E.P.R. Discussion Papers.
  2. Jan Libich, 2006. "Inflexibility Of Inflation Targeting Revisited: Modeling The "Anchoring"Effect," CAMA Working Papers 2006-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Hermann Sintim-Aboagye, 2005. "Emerging Economies, Turnover Rates and Inflation Variability: A Comparison of Generalized Maximum Likelihood and SUR Models," Economic Change and Restructuring, Springer, Springer, vol. 38(2), pages 167-178, June.
  4. Papadamou, Stephanos & Siriopoulos, Costas, 2014. "Interest rate risk and the creation of the Monetary Policy Committee: Evidence from banks’ and life insurance companies’ stocks in the UK," Journal of Economics and Business, Elsevier, Elsevier, vol. 71(C), pages 45-67.
  5. Gerberding, Christina & Worms, Andreas & Seitz, Franz, 2004. "How the Bundesbank really conducted monetary policy: An analysis based on real-time data," Discussion Paper Series 1: Economic Studies 2004,25, Deutsche Bundesbank, Research Centre.

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