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Establishing a Hawkish Reputation: Interest Rate Setting by Newly Appointed Central Bank Governors

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  • Matthias Neuenkirch

    ()
    (University of Aachen)

Abstract

In this paper, we explore the interest rate setting behavior of newly appointed central bank governors. We use the Kuttner and Posen (2010) sample, which covers 15 OECD countries, and estimate an augmented Taylor (1993) rule for the period 1974–2008. We find, first, that newly appointed governors fight inflation more aggressively during the first four to eight quarters of their tenure in an effort to establish a reputation for being inflation averse. Second, we find a significantly stronger reaction to inflation by newly appointed governors working within monetary policy frameworks comprised of an at least partly independent central bank and an explicit nominal anchor.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/46-2012_neuenkirch.pdf
File Function: First version, 2012
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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201246.

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Length: 18 pages
Date of creation: 2012
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201246

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Keywords: Central bank governors; credibility; inflation; monetary policy; reputation; Taylor rules.;

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  1. Stephen Hansen & Michael McMahon, 2012. "First Impressions Matter: Signalling as a Source of Policy Dynamics," CESifo Working Paper Series 3782, CESifo Group Munich.
  2. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
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