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Monetary Policy Transparency, Inflation and the Sacrifice Ratio

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  • Chortareas, Georgios
  • Stasavage, David
  • Sterne, Gabriel

Abstract

We examine how inflation and the costs associated with disinflation episodes are related to monetary policy transparency. We develop a simple model that demonstrates how transparency may result in lower inflation. Our empirical results show that in general, transparency may be associated with lower inflation across a broad range of countries and frameworks. In addition, the output costs of disinflation, as measured by the sacrifice ratio, are negatively related to the degree of monetary policy transparency. The capacity of the central bank to limit the monetary financing of government deficits also has an inflation-reducing effect. Considering transparency as a possible determinant of cross-country differences in the costs of disinflation represents a new contribution to the literature, especially given the failure of previous empirical research to find a robust negative relationship between other aspects of the central bank's institutional design and the sacrifice ratio. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Chortareas, Georgios & Stasavage, David & Sterne, Gabriel, 2002. "Monetary Policy Transparency, Inflation and the Sacrifice Ratio," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 141-155, April.
  • Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:2:p:141-55
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    Citations

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    Cited by:

    1. JoAnne Morris & Tonny Lybek, 2004. "Central Bank Governance; A Survey of Boards and Management," IMF Working Papers 04/226, International Monetary Fund.
    2. Mazumder, Sandeep, 2014. "Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries," Economic Modelling, Elsevier, vol. 40(C), pages 117-135.
    3. Aron Drew & Özer Karagedikli, 2007. "Some Benefits of Monetary-Policy Transparency in New Zealand," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 521-539, December.
    4. Eichler, Stefan & Littke, Helge C.N. & Tonzer, Lena, 2017. "Central bank transparency and cross-border banking," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 1-30.
    5. Carin van der Cruijsen & Sylvester Eijffinger, 2007. "The economic impact of central bank transparency: a survey," DNB Working Papers 132, Netherlands Central Bank, Research Department.
    6. Papadamou, Stephanos & Siriopoulos, Costas, 2014. "Interest rate risk and the creation of the Monetary Policy Committee: Evidence from banks’ and life insurance companies’ stocks in the UK," Journal of Economics and Business, Elsevier, vol. 71(C), pages 45-67.
    7. Matteo Luciani, 2004. "A VAR Model for the Analysis of the Effects of Monetary Policy in the Euro Area," Rivista di Politica Economica, SIPI Spa, vol. 94(6), pages 175-214, November-.
    8. Pornpinun Chantapacdepong & Nuttathum Chutasripanich & Bovonvich Jindarak, 2012. "Central Bank Balance Sheet and Policy Implications," Working Papers 2012-07, Monetary Policy Group, Bank of Thailand.
    9. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2003. "Does monetary policy transparency reduce disinflation costs?," Manchester School, University of Manchester, vol. 71(5), pages 521-540, September.
    10. Carstens, Agustín & Jácome H., Luis I., 2005. "La reforma de los bancos centrales latinoamericanos. Avances y desafíos," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(288), pages 683-732, octubre-d.
    11. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    12. Sánchez, Marcelo, 2011. "Robust central banking under wage bargaining: Is monetary policy transparency beneficial?," Economic Modelling, Elsevier, vol. 28(1-2), pages 432-438, January.
    13. Sánchez, Marcelo, 2011. "Robust central banking under wage bargaining: Is monetary policy transparency beneficial?," Economic Modelling, Elsevier, vol. 28(1), pages 432-438.
    14. Virginie Traclet, 2004. "Monetary and Fiscal Policies in Canada: Some Interesting Principles for EMU?," Staff Working Papers 04-28, Bank of Canada.
    15. Agustin Carstens & Luis I. Jacome H., 2005. "Latin American Central Bank Reform: Progress and Challenges," Macroeconomics 0509022, EconWPA.
    16. repec:kap:iecepo:v:15:y:2018:i:1:d:10.1007_s10368-016-0365-z is not listed on IDEAS
    17. Neuenkirch, Matthias, 2013. "Central bank transparency and financial market expectations: The case of emerging markets," Economic Systems, Elsevier, vol. 37(4), pages 598-609.
    18. Agustín Carstens, & Luis I. Jácome, 2005. "The 1990s Institutional Reform of Monetary Policy in Latin America," Working Papers Central Bank of Chile 343, Central Bank of Chile.
    19. Bank for International Settlements, 2009. "Communication of monetary policy decisions by central banks: what is revealed and why," BIS Papers, Bank for International Settlements, number 47, November.
    20. Thanaset Chevapatrakul & Juan Paez-farrell, 2013. "What determines the sacrifice ratio? A quantile regression approach," Economics Bulletin, AccessEcon, vol. 33(3), pages 1863-1874.

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