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The quality of monetary policy and inflation performance: globalization and its aftermath

  • Bohl , Martin T


    (Westfälische-Wilhelms Universität)

  • Mayes , David G


    (University of Auckland)

  • Siklos, Pierre L


    (Wilfrid Laurier University, Viessmann European Research Centre, Waterloo, ON, Canada. Freie Universität, Berlin, Germany. Centre for International Governance Innovation (CIGI))

With a few unfortunate exceptions the last three decades have seen reductions in inflation around the world to the point that many would argue that further improvements in price stability would offer only limited welfare gains. This experience is the result of many factors, some of which are country-specific. In this paper we seek to isolate one of the factors, namely, the improvement in the quality of monetary policy. There are two novel aspects to the study. Firstly, we essentially estimate a gravity-like model. Secondly, we propose generally a more exhaustive analysis of the potential role of a large number of institutional factors than has been done before. Briefly, we find that institutional factors play a role in explaining inflation relative to the US experience, which is used as the benchmark. Nevertheless, any reduction in inflation stemming from greater central bank autonomy is a feature of the 1980s and early 1990s. Thereafter, central banks in the OECD look very much alike.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 31/2009.

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Length: 51 pages
Date of creation: 09 Nov 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_031
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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