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Does Conservatism Matter? A Time Series Approach to Central Banking

  • Helge Berger
  • Ulrich Woitek

Rogoff’s "conservative central banker" has received a lot of attention recently. As a rule, central bank independence and inflation seem to be negatively correlated across countries. But the cross-country approach has been criticized for its reliance on legal measures and the measures’ possible endogeneity. We present an alternative test of whether conservatism in monetary policy matters based on generalized impulse response functions for the case of the German Bundesbank. It turns out that more conservative council majorities do indeed follow a more inflation-averse policy. We find the results very robust with regard to changes in the exchange rate regime, government/central bank conflicts, and the partisan composition of the government.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 9814.

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Date of revision: May 1999
Handle: RePEc:gla:glaewp:9814
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