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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. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
    2. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    3. 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.
    4. 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.
    5. Fratianni, M. & Huang, H., 1992. "Central Bank Independence and its Optimal Degree of Conservativeness," Economics Working Papers 1993-8, School of Economics and Management, University of Aarhus.
    6. 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. 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.
    2. 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.).
    3. 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.
    4. 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.
    5. Giuseppe Diana & Moïse Sidiropoulos, 2004. "Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio," Open Economies Review, Springer, vol. 15(4), pages 385-402, October.
    6. 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.
    7. Ian Down, 2009. "Central Bank Independence, Disinflations and Monetary Policy," Business and Politics, De Gruyter, vol. 10(3), pages 1.

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