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Time inconsistency of monetary policy: Empirical evidence from polls

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  • Michael Berlemann

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Abstract

While the basic model of time inconsistency, put forward by Barro and Gordon (Barro, R. J., & Gordon, D. B. (1983). Journal of Political Economy, 91, 589–610) is widely accepted now, several authors have expressed serious doubts about the empirical relevance of the model in explaining inflation. Interestingly enough, few attempts have been made so far to test for the existence of inflationary biases empirically. Theory predicts a positive correlation between a monetary authority's relative preference for the high employment goal and inflation. Using polling data from six countries as a proxy for public preferences we provide empirical evidence in favor of the Barro-Gordon-model. Copyright Springer Science + Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 125 (2005)
Issue (Month): 1 (July)
Pages: 1-15

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Handle: RePEc:kap:pubcho:v:125:y:2005:i:1:p:1-15

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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  8. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  9. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  10. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  11. Peter N. Ireland, 1998. "Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States?," Boston College Working Papers in Economics 415, Boston College Department of Economics.
  12. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-20, December.
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Cited by:
  1. Sachsida, Adolfo & Divino, Jose Angelo & Cajueiro, Daniel Oliveira, 2011. "Inflation, unemployment, and the time consistency of the US monetary policy," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 173-179, June.
  2. Berlemann, Michael & Hilscher, Kai, 2010. "Effective monetary policy conservatism: A comparison of 11 OECD countries," HWWI Research Papers 2-21, Hamburg Institute of International Economics (HWWI).

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