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The credibility of monetary reform – New evidence

  • Andreas Freytag

    ()

The history of monetary policy is characterised by crisis and reform. The paper is dedicated to an explanation of what makes monetary reforms successful. A cross-sectional econometric analysis is chosen to deal with this problem. It is based on a standard macroeconomic model of commitment and credibility. As the dependent variable, we calculate a post-reform inflation rate. The exogenous variables are the degree of legal commitment, the constraining influence of institutions and a new variable for ex-ante credibility of the reform. The paper allows for the conclusion that monetary commitment, the consideration of institutional constraints and abstinence from the money press are crucial for the success of a monetary reform. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11127-005-2055-1
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Article provided by Springer in its journal Public Choice.

Volume (Year): 124 (2005)
Issue (Month): 3 (September)
Pages: 391-409

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Handle: RePEc:kap:pubcho:v:124:y:2005:i:3:p:391-409
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Robert J. Barro, 1983. "Inflationary Finance under Discretion and Rules," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 1-16, February.
  2. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  4. Fischer, Stanley, 1983. "Indexing and inflation," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 519-541, November.
  5. 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.
  6. Bennett T. McCallum, 1996. "Crucial Issues Concerning Central Bank Independence," NBER Working Papers 5597, National Bureau of Economic Research, Inc.
  7. Stanley Fischer & Ratna Sahay & Carlos A. V�gh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
  8. Klein,Martin & Neumann,Manfred, . "Seignorage: What is it and who gets it?," Discussion Paper Serie B 124, University of Bonn, Germany.
  9. Andreas Freytag, 2001. "Does central bank independence reflect monetary commitment properly? Methodical considerations," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(217), pages 181-208.
  10. Mas, Ignacio, 1995. "Things Governments Do to Money: A Recent History of Currency Reform Schemes and Scams," Kyklos, Wiley Blackwell, vol. 48(4), pages 483-512.
  11. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
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