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The Sacrifice Ratio and Central Bank Independence Revisited

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  • Harold Brumm

    ()

  • Richard Krashevski

Abstract

Several recent studies make use of cross-country data to examine the relationship between a country's sacrifice ratio and the extent to which its central bank is insulated from political influence. These studies report a positive correlation between these two variables. However, these studies employ econometric methodologies that do not account for the measurement error which contaminates their proxies for central bank independence. This paper makes use of an alternative econometric methodology, one that does account for this measurement error, and finds a strong negative relationship between the sacrifice ratio and Central Bank independence. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1022361929854
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 14 (2003)
Issue (Month): 2 (April)
Pages: 157-168

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Handle: RePEc:kap:openec:v:14:y:2003:i:2:p:157-168

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

Related research

Keywords: measurement error; Central Bank independence; sacrifice ratio;

References

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  1. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  2. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  3. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  4. Eijffinger, S.C.W. & Rooij, M. van & Schaling, E., 1996. "Central Bank Independence: A Panel Data Approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73023, Tilburg University.
  5. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, vol. 41(4), pages 733-50, July.
  6. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  7. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  8. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
  9. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  10. Bentler, P. M., 1983. "Simultaneous equation systems as moment structure models : With an introduction to latent variable models," Journal of Econometrics, Elsevier, vol. 22(1-2), pages 13-42.
  11. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39.
  12. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  13. Hutchison, M M & Walsh, C E, 1998. "The Output-Inflation Tradeoff and Central Bank Reform: Evidence from New Zealand," Economic Journal, Royal Economic Society, vol. 108(448), pages 703-25, May.
  14. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  15. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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Citations

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Cited by:
  1. Down Ian, 2009. "Central Bank Independence, Disinflations and Monetary Policy," Business and Politics, De Gruyter, vol. 10(3), pages 1-22, January.
  2. Mazumder, Sandeep, 2014. "Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries," Economic Modelling, Elsevier, vol. 40(C), pages 117-135.
  3. 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.
  4. Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.

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