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Time inconsistency of monetary policy: Empirical evidence from polls

  • Michael Berlemann

    ()

While the basic model of time inconsistency, put forward by Barro and Gordon (Barro, R. J., & Gordon, D. B. (1983). Journal of Political Economy, 91, 589–610) is widely accepted now, several authors have expressed serious doubts about the empirical relevance of the model in explaining inflation. Interestingly enough, few attempts have been made so far to test for the existence of inflationary biases empirically. Theory predicts a positive correlation between a monetary authority's relative preference for the high employment goal and inflation. Using polling data from six countries as a proxy for public preferences we provide empirical evidence in favor of the Barro-Gordon-model. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11127-005-3324-8
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Article provided by Springer in its journal Public Choice.

Volume (Year): 125 (2005)
Issue (Month): 1 (July)
Pages: 1-15

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Handle: RePEc:kap:pubcho:v:125:y:2005:i:1:p:1-15
DOI: 10.1007/s11127-005-3324-8
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/public+finance/journal/11127/PS2

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  1. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  3. Giavazzi, Francesco & Pagano, Marco, 1988. "The advantage of tying one's hands : EMS discipline and Central Bank credibility," European Economic Review, Elsevier, vol. 32(5), pages 1055-1075, June.
  4. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
  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, March.
  6. Peter N. Ireland, 1998. "Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States?," Boston College Working Papers in Economics 415, Boston College Department of Economics.
  7. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
  8. 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.
  9. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  10. 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.
  11. Susan W. Taylor & David J. Smyth & Pami Dua, 1999. "Estimating the public's social preference function between inflation and unemployment using survey data: The survey research center versus Gallup," Empirical Economics, Springer, vol. 24(3), pages 361-372.
  12. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-20, December.
  13. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  14. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
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