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Time inconsistency of monetary policy: Empirical evidence from polls

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  • Michael Berlemann

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Abstract

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

Suggested Citation

  • Michael Berlemann, 2005. "Time inconsistency of monetary policy: Empirical evidence from polls," Public Choice, Springer, vol. 125(1), pages 1-15, July.
  • Handle: RePEc:kap:pubcho:v:125:y:2005:i:1:p:1-15 DOI: 10.1007/s11127-005-3324-8
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    References listed on IDEAS

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    1. 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.
    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.
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    8. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-920, December.
    9. 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.
    10. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    11. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    12. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
    13. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    14. 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.
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    Citations

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    Cited by:

    1. Berlemann, Michael & Hilscher, Kai, 2010. "Effective monetary policy conservatism: A comparison of 11 OECD countries," HWWI Research Papers 2-21, Hamburg Institute of International Economics (HWWI).
    2. Berlemann, Michael & Hielscher, Kai, 2011. "A Time-varying Indicator of Effective Monetary Policy Conservatism," Working Paper 112/2011, Helmut Schmidt University, Hamburg.
    3. Michael Berlemann & Kai Hielscher, 2016. "Measuring Effective Monetary Policy Conservatism of Central Banks: A Dynamic Approach," Annals of Economics and Finance, Society for AEF, vol. 17(1), pages 105-132, May.
    4. Berlemann, Michael & Hielscher, Kai, 2009. "Measuring Effective Monetary Policy Conservatism," Working Paper 89/2009, Helmut Schmidt University, Hamburg.
    5. Berggren, Niclas & Daunfeldt, Sven-Olov & Hellström, Jörgen, 2014. "Social trust and central-bank independence," European Journal of Political Economy, Elsevier, vol. 34(C), pages 425-439.
    6. repec:kap:empiri:v:44:y:2017:i:2:d:10.1007_s10663-016-9316-8 is not listed on IDEAS
    7. Sachsida, Adolfo & Divino, Jose Angelo & Cajueiro, Daniel Oliveira, 2011. "Inflation, unemployment, and the time consistency of the US monetary policy," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 173-179, June.
    8. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
    9. Michael Berlemann & Kai Hielscher, 2013. "Effective Monetary Policy Conservatism: A Comparison of 13 OECD Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(3), pages 267-290, July.

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