The Cost of Political Intervention in Monetary Policy
AbstractBetween 1994 and 1997, UK monetary policy decisions were taken by the Minister of Finance, but the advice of the central bank was published with a short delay. Thus, the financial markets could observe when the political authority took the same view as the monetary authority and when it did not, and could use evidence of disagreements as prima facie evidence of the pursuit by the political authority of objectives other than the explicit inflation target. This paper finds that the credibility of monetary policy as measured by the long-term interest differential between the UK and Germany is systematically related to an index of agreement constructed from the agreements or disagreements between the two authorities. No such relationship is found for the yield differential against the US, probably because of the greater prevalence of country-specific factors, notably inflation scares, over this period in the US. Partial corroboration is found for a subperiod ending in late 1996 from the relationship between the agreement index and the inflation forward rate. Copyright Blackwell Publishing Ltd. 2004
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal International Finance.
Volume (Year): 7 (2004)
Issue (Month): 3 (December)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271
Other versions of this item:
- David Cobham & Athanasios Papadopoulos & George Zis, 2001. "The Cost of Political Intervention in Monetary Policy," Discussion Paper Series, Department of Economics 200114, Department of Economics, University of St. Andrews.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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