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Central Bank Independence and Sacrifice Ratios: Some Further Considerations

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  • Ernst Baltensperger
  • Peter Kugler

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    Abstract

    The existing literature reports a positive relationship between sacrifice ratios and central bank independence. This paper discusses two critical points related to the usual procedures employed by this literature. One concerns the issue of non-stationarity of the inflation rate, the other the problem of correlation between the error terms for different disinflation episodes in the same country. The way in which the sacrifice ratio-central bank independence relationship is tested is reconsidered taking into account these points. Our results shed considerable doubts on the nature and robustness of such a relationship and on the usual interpretation given to it in the literature. Copyright Kluwer Academic Publishers 2000

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    File URL: http://hdl.handle.net/10.1023/A:1008309303922
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    Bibliographic Info

    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 11 (2000)
    Issue (Month): 2 (April)
    Pages: 111-125

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    Handle: RePEc:kap:openec:v:11:y:2000:i:2:p:111-125

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    Web page: http://www.springerlink.com/link.asp?id=100323

    Related research

    Keywords: central bank independence; sacrifice ratio; stationarity of inflation; panel data estimation;

    References

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    1. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
    2. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
    3. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
    4. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
    5. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
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    Cited by:
    1. Reiner Eichenberger & Sergio Rossi, 2004. "Die Deregulierung der Zentralbanken: Auf zu einem internationalen Markt für gute Geldpolitik!," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 327-353, September.
    2. Coffinet, J., 2006. "Ratios de sacrifice et rigidités sur le marché du travail," Bulletin de la Banque de France, Banque de France, issue 151, pages 59-73.
    3. Giuseppe Diana & Moise Sidiropoulos, 2003. "Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio," Working Papers of BETA 2003-08, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Miguel Rueda, 2008. "Credibilidad en la política monetaria: Papel de políticas en la estabilidad del Presidente del Banco Central," Research Department Publications 4586, Inter-American Development Bank, Research Department.
    5. J. Benson Durham, 2001. "Sacrifice ratios and monetary policy credibility: do smaller budget deficits, inflation-indexed debt, and inflation targets lower disinflation costs?," Finance and Economics Discussion Series 2001-47, Board of Governors of the Federal Reserve System (U.S.).
    6. Miguel Rueda, 2008. "Breaking Credibility in Monetary Policy: The Role of Politics in the Stability of the Central Banker," Research Department Publications 4585, Inter-American Development Bank, Research Department.
    7. Giuseppe Diana & MoÏse Sidiropoulos, 2006. "Central Bank Independence and the Cost of Disinflation: Why the Wage Contracts Length Matters?," International Advances in Economic Research, Springer, vol. 12(3), pages 287-297, August.
    8. Down Ian, 2009. "Central Bank Independence, Disinflations and Monetary Policy," Business and Politics, De Gruyter, vol. 10(3), pages 1-22, January.

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