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Institutions, arrangements and preferences for inflation stability: Evidence and lessons from a panel data analysis

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  • Krause, Stefan
  • Méndez, Fabio

Abstract

We study how monetary, exchange-rate and other institutional arrangements are associated with policy makers' preferences for inflation stability. We argue that focusing on policy intentions, represented by these preferences, constitutes a better way of evaluating policy behavior, instead of looking at inflation outcomes that may be unavoidable at times. Using a panel of 34 countries over a period of 24 years we find that a high degree of preference for inflation stability is significantly correlated only with central bank independence and membership to the European Economic and Monetary Union for low inflation countries, whereas for high inflation countries only strict inflation targeting and, to some extent, central bank independence, are relevant for inflation stabilizing policies. Finally, we find no robust evidence suggesting that either adopting an exchange rate anchor or employing fiscal policy are associated with an inflation averse behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 1 (March)
Pages: 282-307

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:282-307

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Web page: http://www.elsevier.com/locate/inca/622617

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Cited by:
  1. Canofari Paolo & Di Bartolomeo Giovanni & Piersanti Giovanni, 2013. "Theory and practice of contagion in monetary unions. Domino effects in EU Mediterranean countries: The case of Greece, Italy and Spain," wp.comunite 0098, Department of Communication, University of Teramo.
  2. Stefan Krause & Felix Rioja, 2006. "Financial Development and Monetary Policy Efficiency," Emory Economics, Department of Economics, Emory University (Atlanta) 0613, Department of Economics, Emory University (Atlanta).
  3. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Assessing the Sources of Changes in the Volatility of Real Growth," NBER Working Papers 11946, National Bureau of Economic Research, Inc.
  4. Levieuge, Grégory & Lucotte, Yannick, 2012. "A simple empirical measure of central banks' conservatism," MPRA Paper 38424, University Library of Munich, Germany.
  5. Etienne Farvaque & Alexander Mihailov, 2008. "Intergenerational Transmission of Inflation Aversion: Theory and Evidence," Economics & Management Discussion Papers, Henley Business School, Reading University em-dp2008-71, Henley Business School, Reading University.
  6. Aleksandra Maslowska, 2008. "Quest for the best: How to measure central bank independence and show its relation with inflation?," Discussion Papers, Aboa Centre for Economics 37, Aboa Centre for Economics.
  7. Pierre L. Siklos, 2008. "Inflation Targeting Around the World," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 44(6), pages 17-37, November.
  8. Wai-Ching Poon & Gee-Kok Tong, 2009. "The feasibility of inflation targeting in Malaysia," Economics Bulletin, AccessEcon, vol. 29(2), pages 1035-1045.
  9. Aleksandra A. Maslowska, 2011. "Quest for the Best: How to Measure Central Bank Independence and Show its Relationship with Inflation," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 132-161, August.
  10. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
  11. Stefan Krause & Fabio Mendez, 2006. "Does Opportunism Pay Off? A Study of Vote Functions and Policy Preferences," Emory Economics, Department of Economics, Emory University (Atlanta) 0604, Department of Economics, Emory University (Atlanta).

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