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The Effect of Transparency, Independence and Accountability of Central Banks on Disinflation Costs

Author

Listed:
  • Golnaz B. Motie

    (Western Kentucky University)

  • Joshua Hall

    (West Virginia University)

Abstract

Policymakers often want to achieve low inflation to avoid the low economic growth associated with high inflation. Reducing inflation through monetary policy (disinflation) is not costless as it can coincide with higher unemployment rates and reduced output. In this paper we use sacrifice ratios to calculate the cost of disinflation during the 1990s for 40 countries. We then study whether transparency and democratic accountability of monetary institutions reduces disinflation costs. Our empirical results suggest that more transparent central banks seem to face higher disinflation costs. This result could be because more transparent central banks have lower initial inflation rates during their disinflation episodes. Therefore, reducing inflation even further is more costly to them. We find no significant relationship between independence of central banks and the disinflation costs they faced during 1990s.

Suggested Citation

  • Golnaz B. Motie & Joshua Hall, 2020. "The Effect of Transparency, Independence and Accountability of Central Banks on Disinflation Costs," Working Papers 20-02, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:20-02
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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1040&context=econ_working-papers
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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