Commitment Rather Than Independence: An Institutional Design for Reducing the Inflationary Bias of Monetary Policy
This paper distinguishes between central bank independence and central bank commitment. Independent central banks are free to choose their policy goals and instruments, whereas committed central banks are limited in their behavior with the goal of price stability. It is argued that for political and economic reasons commitment is to be preferred over independence. For sixteen industrial countries, the central banks are ranked according to their degree of central bank independence and to their degree of commitment. The empirical evidence does not indicate a significant relationship between independence, whereas a commitment strategy, which does not require institutional changes, lowers inflation without affecting output. Copyright 1996 by WWZ and Helbing & Lichtenhahn Verlag AG
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Volume (Year): 49 (1996)
Issue (Month): 3 ()
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