Low inflation at no cost? A numerical simulations exercise
Abstract
The independent nature of the Central Bank is often associated with achieving low and stable inflation. Further to that the merits of independence are stretched to achieving low(er) output variability when compared to a government run monetary policy. In this paper we use the Alesina and Alesina and Gatti model to examine how often an Independent Central Bank can achieve an improvement on both counts. To do that we run numerical simulations where we change the ex ante probability of elections (and hence the degree of electoral uncertainty) with a view to determining how the private sector's perceptions affect the level of output variability. Our conclusions agree with the Alesina and Gatti assertion that there will exist occasions that both political parties will consent to the running of monetary policy by an independent institution but that is the least often occurred outcome. On theoretical grounds therefore, the trade-off between inflation and output variability (à la Rogoff) is still a valid one.Download Info
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 72.Length: 27 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:dnb:staffs:72
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Related research
Keywords: Central Bank Independence; Output stability; Political uncertainty;Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- M. Demertzis & A. Hughes Hallett & N. Viegi, 2002. "An Independent Central Bank faced with Elected Government: A Political Economy Conflict," WO Research Memoranda (discontinued) 686, Netherlands Central Bank, Research Department.
- Athanasios Anastasiou, 2009. "Central Bank Independence and Economic Performance," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 3(1), pages 123-156, June.
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