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The Sacrifice Ratio and Central Bank Independence Revisited

  • Harold Brumm


  • Richard Krashevski

Several recent studies make use of cross-country data to examine the relationship between a country's sacrifice ratio and the extent to which its central bank is insulated from political influence. These studies report a positive correlation between these two variables. However, these studies employ econometric methodologies that do not account for the measurement error which contaminates their proxies for central bank independence. This paper makes use of an alternative econometric methodology, one that does account for this measurement error, and finds a strong negative relationship between the sacrifice ratio and Central Bank independence. Copyright Kluwer Academic Publishers 2003

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 14 (2003)
Issue (Month): 2 (April)
Pages: 157-168

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Handle: RePEc:kap:openec:v:14:y:2003:i:2:p:157-168
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  1. Eijffinger, S.C.W. & van Rooij, M. & Schaling, E., 1994. "Central bank independence : A paneldata approach," Discussion Paper 1994-93, Tilburg University, Center for Economic Research.
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  9. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  10. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
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  12. Bentler, P. M., 1983. "Simultaneous equation systems as moment structure models : With an introduction to latent variable models," Journal of Econometrics, Elsevier, vol. 22(1-2), pages 13-42.
  13. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  14. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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