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Testing Commitment Models of Monetary Policy: Evidence from OECD Economies

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  • MATTHEW DOYLE
  • BARRY FALK

Abstract

Inflation in many Organisation for Economic Co-operation and Development (OECD) countries was low in the 1960s, rose for a time before peaking in the 1970s or early 1980s, and then fell back to initial levels. This paper shows that a simple time inconsistency model of monetary policy does not explain OECD inflation outcomes, except in the United States. The hypothesis that time inconsistency mattered only in earlier decades fits the data no better than the baseline model. We find some, albeit limited support for a model in which inflation spills over from the United States into other countries as a result of exchange rate targeting. Copyright (c)2008 The Ohio State University.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 2-3 (03)
Pages: 409-425

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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:2-3:p:409-425

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  12. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
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Cited by:
  1. Haug, Alfred A. & King, Ian P., 2011. "Empirical evidence on inflation and unemployment in the long run," MPRA Paper 33409, University Library of Munich, Germany.
  2. Naveen Srinivasan & Pratik Mitra, 2014. "The European unemployment problem: its cause and cure," Empirical Economics, Springer, vol. 47(1), pages 57-73, August.
  3. Matthew Doyle & Barry Falk, 2009. "Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?," Working Papers 0902, University of Waterloo, Department of Economics, revised Feb 2009.
  4. Sudhanshu Kumar & Naveen Srinivasan & Muthiah Ramachandran, 2012. "A time-varying parameter model of inflation in India," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 25-50, April.

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