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Time inconsistency of monetary policy: Empirical evidence from polls

Listed author(s):
  • 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. 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.
  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. 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.
  4. Giavazzi, Francesco & Pagano, Marco, 1986. "The Advantages of Tying One's Hands: EMS Discipline and Central Bank Credibility," CEPR Discussion Papers 135, C.E.P.R. Discussion Papers.
  5. 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 1-10, December.
  6. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  7. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-920, December.
  8. Ireland, Peter N., 1999. "Does the time-consistency problem explain the behavior of inflation in the United States?," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 279-291, October.
  9. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  10. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
  11. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
  12. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
  13. 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.
  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 473-491, June.
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