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Central Bank Independence and the Sacrifice Ratio: The Dark Side of the Force

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  • Manfred Gärtner

Abstract

The paper looks at the empirical relationship between central bank independence (CBI) and income losses caused by restrictive monetary policy. It finds that higher CBI goes along with higher sacrifice ratios. This relationship is strongly nonlinear (differences at high CBI levels matter much more), robust and dominant (no other variables discussed in the literature exert a significant influence alongside CBI). Also between 1973 and 1988 total income losses added up over all disinflation episodes are highest in countries with the most independent central banks. No evidence is found that higher sacrifice ratios are due to flatter Philips curves.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 133 (1997)
Issue (Month): III (September)
Pages: 513-538

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Handle: RePEc:ses:arsjes:1997-iii-12

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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. Francesca Castellani & Xavier Debrun, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund.
  3. Tonny Lybek, 1999. "Central Bank Autonomy, and Inflation and Output Performance in the Baltic States, Russia, and Other Countries of the Former Soviet Union, 1995-1997," IMF Working Papers 99/4, International Monetary Fund.
  4. Down Ian, 2009. "Central Bank Independence, Disinflations and Monetary Policy," Business and Politics, De Gruyter, vol. 10(3), pages 1-22, January.
  5. Bartsch, Klaus & Hein, Eckhard & Truger, Achim, 2001. "Zur Interdependenz von Geld- und Lohnpolitik: Makroökonometrische Ex-post und Ex-ante Simulationen verschiedener Szenarien für die Bundesrepublik Deutschland
    [On the interdependence of monetary a
    ," MPRA Paper 18715, University Library of Munich, Germany.
  6. Agustin Carstens & Luis I. Jacome H., 2005. "Latin American Central Bank Reform: Progress and Challenges," Macroeconomics 0509022, EconWPA.
  7. 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.
  8. Chrigui, Zouhair & Boujelbene, Younes & Mhamdi, Ghrissi, 2011. "Central Bank independence and inflation: Evidence from emerging countries," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 453-469, May.
  9. Hein, Eckhard, 2001. "Institutions and Macroeconomic Performance: Central Bank Independence, Labour Market Institutions and the Perspectives for Inflation and Employment in the European Monetary Union," MPRA Paper 18880, University Library of Munich, Germany.
  10. Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2013. "Trend inflation as a workers’ discipline device," Empirica, Springer, vol. 40(2), pages 215-235, May.
  11. International Monetary Fund, 2005. "Latin American Central Bank Reform," IMF Working Papers 05/114, International Monetary Fund.

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