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Political Regimes and the Cost of Disinflation

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  • BARBARA CAPORALE
  • TONY CAPORALE

Abstract

This study investigates, using data from 1960 to 1998, whether the nature of political regimes can help explain cross‐national and intertemporal variations in the cost of disinflationary policies, as measured by the sacrifice ratio. We show that, ceteris paribus, right‐wing governments have lower costs of disinflations than left‐wing governments. We argue this is due to a superior credibility, resulting from their stronger anti‐inflation reputations. In addition (and in marked contrast to previous studies), we find that when we control for political regimes, trade openness, and other standard factors in this literature, central bank independence has no significant effect on the sacrifice ratio.

Suggested Citation

  • Barbara Caporale & Tony Caporale, 2008. "Political Regimes and the Cost of Disinflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1541-1554, October.
    • Handle: RePEc:wly:jmoncb:v:40:y:2008:i:7:p:1541-1554
    DOI: 10.1111/j.1538-4616.2008.00172.x
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    4. Petrevski, Goran, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," EconStor Preprints 271122, ZBW - Leibniz Information Centre for Economics.
    5. Polasik, Michał & Huterska, Agnieszka & Iftikhar, Rehan & Mikula, Štěpán, 2020. "The impact of Payment Services Directive 2 on the PayTech sector development in Europe," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 385-401.

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