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Does Conservatism Matter? A Time-Series Approach to Central Bank Behaviour

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  • Helge Berger
  • Ulrich Woitek

Abstract

Empirical studies crediting 'independent and conservative central banks' with lowering inflation and inflation volatility have been criticised for their focus on policy outcomes instead of policies, and for their unsystematic conflation of independence and conservatism. We present results from time-series models for the German Bundesbank that avoid these shortfalls. Conservatism matters in the following sense: ("i" ) more conservative Bundesbank Councils tend to react stronger to changes in inflation and output, and ("ii" ) an increase in conservatism leads to a more activist stabilisation policy. This is in line with simple policy models incorporating economic persistence with implementation lags for monetary policy. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Helge Berger & Ulrich Woitek, 2005. "Does Conservatism Matter? A Time-Series Approach to Central Bank Behaviour," Economic Journal, Royal Economic Society, vol. 115(505), pages 745-766, July.
    • Handle: RePEc:ecj:econjl:v:115:y:2005:i:505:p:745-766
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