Emerging Economies, Turnover Rates and Inflation Variability: A Comparison of Generalized Maximum Likelihood and SUR Models
Theoretical exposition and empirical evidence in central bank independence (CBI) literature confirm an inverse relationship between inflation and measures of CBI mostly in developed economies. Based on this ex ante information on CBI-inflation tradeoff, this paper proposes two functional forms for the diagonal and off diagonal elements in the residual covariance matrix in the estimation process. The proposed functional forms are used in a generalized maximum likelihood and then in a generalized least squares (GLS) (with the restricted covariance matrix) framework for the empirical test. The results are compared to the outcome of an SUR model (unrestricted). The tests involve 14 emerging economies and covers the period 1960–1990. Compared to SUR, majority of results of GLS model in samples with and without outliers provide stronger and more significant evidence confirming the CBI-inflation tradeoff. Notably, the standard errors of the GLS estimates are lower than that of the SUR estimates. Without outliers, the GLS estimates show even lower standard errors as compared to the outcome of the SUR model. Low standard errors provide baseline indication of more accurate estimates. Copyright Springer Science+Business Media, Inc. 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bilin Neyapti, 2003. "Budget Deficits and Inflation: The Roles of Central Bank Independence and Financial Market Development," Contemporary Economic Policy, Western Economic Association International, vol. 21(4), pages 458-475, October.
- Pierre L. Siklos, 2004. "Central Bank Behavior, the Institutional Framework, and Policy Regimes: Inflation Versus Noninflation Targeting Countries," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 331-343, 07.
- Cukierman Alex, 1992.
"Central Bank Strategy, Credibility, And Independance: Theory And Evidence,"
Journal des Economistes et des Etudes Humaines,
De Gruyter, vol. 3(4), pages 10, December.
- Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, June.
- Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
- David Backus & John Driffill, 1984.
"Inflation and Reputation,"
560, Queen's University, Department of Economics.
- Schellekens, Philip, 2002. "Caution and Conservatism in the Making of Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 160-77, February.
- Giuseppe Diana & Moise Sidiropoulos, 2003.
"Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio,"
Working Papers of BETA
2003-08, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Giuseppe Diana & Moïse Sidiropoulos, 2004. "Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio," Open Economies Review, Springer, vol. 15(4), pages 385-402, October.
- Eijffinger, S. & De Hann, J., 1995.
"The Political Economy of Central Bank Independence,"
9587, Tilburg - Center for Economic Research.
- Eijffinger, S-C-W & de Haan, J, 1996. "The Political Economy of Central-Bank Independence," Princeton Studies in International Economics 19, International Economics Section, Departement of Economics Princeton University,.
- Hermann Sintim-Aboagye & David Tufte, 2006. "Central Bank Independence, Inflation Variability, and the Revenue Smoothing Hypothesis," International Advances in Economic Research, International Atlantic Economic Society, vol. 12(2), pages 147-160, May.
- Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 2000.
"Inequality, inflation, and central bank independence,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 33(1), pages 271-287, February.
- Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 1997. "Inequality, inflation, and central bank independence," Working Papers 9705, Federal Reserve Bank of Dallas.
- Mark M. Spiegel, 1998. "Central bank independence and inflation expectations: evidence from British index-linked gilts," Economic Review, Federal Reserve Bank of San Francisco, pages 3-14.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, vol. 3(4), pages 429-448, December.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Guy Debelle & Stanley Fischer, 1994.
"How independent should a central bank be?,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston, vol. 38, pages 195-225.
When requesting a correction, please mention this item's handle: RePEc:kap:ecopln:v:38:y:2005:i:2:p:167-178. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.