Breaking Credibility in Monetary Policy: The Role of Politics in the Stability of the Central Banker
This paper studies the relationship between the hazard rate of the exit of a president of a central bank and a measure of credibility in monetary policy. The expected hazard rate of exit is estimated as a function of legal and political variables. The measure of credibility is the expected probability of a disinflation beginning when inflation is rising. For a sample of 22 Latin American and G7 countries, I find a negative relationship between the hazard rate of exit and the measure of credibility. This provides evidence of the expected relationship between independence and credibility not found in previous cross country studies. Using the executive’s party ideology as a measure of aversion to inflation, there was no evidence that this relationship is different for countries where the government is identified as more conservative. However, when a president of the central bank appointed by a conservative government is in office, a rise in the probability of a disinflation beginning when inflation was rising was found. The results show that legal independence after controlling for the hazard rate of the president’s exit is not associated with credibility gains.
|Date of creation:||Sep 2008|
|Date of revision:|
|Contact details of provider:|| Postal: 1300 New York Avenue, NW, Washington, DC 20577|
Web page: http://www.iadb.org/res
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dany Jaimovich & Ugo Panizza, 2010.
"Public debt around the world: a new data set of central government debt,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 17(1), pages 19-24, January.
- Dany Jaimovich & Ugo Panizza, 2006. "Public Debt around the World: A New Dataset of Central Government Debt," Research Department Publications 4461, Inter-American Development Bank, Research Department.
- Dany Jaimovich & Ugo Panizza, 2006. "Public Debt around the World: A New Dataset of Central Government Debt," IDB Publications (Working Papers) 6710, Inter-American Development Bank.
- A. Javier Hamann & Alessandro Prati, 2002. "Why Do Many Disinflations Fail? the Importance of Luck, Timing, and Political Institutions," IMF Working Papers 02/228, International Monetary Fund.
- D. Backus & J. Driffil, 1998.
"Inflation and Reputation,"
Levine's Working Paper Archive
625, David K. Levine.
- Posen, Adam, 1998.
"Central Bank Independence and Disinflationary Credibility: A Missing Link?,"
Oxford Economic Papers,
Oxford University Press, vol. 50(3), pages 335-59, July.
- Adam S. Posen, 1995. "Central bank independence and disinflationary credibility: a missing link?," Staff Reports 1, Federal Reserve Bank of New York.
- Ernst Baltensperger & Peter Kugler, 2000. "Central Bank Independence and Sacrifice Ratios: Some Further Considerations," Open Economies Review, Springer, vol. 11(2), pages 111-125, April.
- Anne Sibert, 2006.
"Central Banking by Committee,"
Wiley Blackwell, vol. 9(2), pages 145-168, 08.
- Aisen, Ari & Veiga, Francisco José, 2008.
"The political economy of seigniorage,"
Journal of Development Economics,
Elsevier, vol. 87(1), pages 29-50, August.
- Eijffinger, S-C-W & de Haan, J, 1996.
"The Political Economy of Central-Bank Independence,"
Princeton Studies in International Economics
19, International Economics Section, Departement of Economics Princeton University,.
- Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
- Sueyoshi, Glenn T, 1995. "A Class of Binary Response Models for Grouped Duration Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 411-31, Oct.-Dec..
- Paul R Masson & Allan Drazen, 1994.
"Credibility of Policies Versus Credibility of Policymakers,"
IMF Working Papers
94/49, International Monetary Fund.
- Allan Drazen & Paul R. Masson, 1994. "Credibility of Policies Versus Credibility of Policymakers," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 735-754.
- Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
- Eslava, Marcela, 2010.
"Central bankers in government appointed committees,"
Journal of Public Economics,
Elsevier, vol. 94(5-6), pages 363-379, June.
- Marcela Eslava, 2007. "Central Bankers In Government Appointed Committees," DOCUMENTOS CEDE 002051, UNIVERSIDAD DE LOS ANDES-CEDE.
- Helge Berger & Ulrich Woitek, .
"Does Conservatism Matter? A Time Series Approach to Central Banking,"
9814, Business School - Economics, University of Glasgow, revised May 1999.
- Helge Berger & Ulrich Woitek, 1999. "Does Conservatism Matter? A Time Series Approach to Central Banking," CESifo Working Paper Series 190, CESifo Group Munich.
- Axel Dreher & Jakob de Haan & Jan-Egbert Sturm, 2006. "When Is a Central Bank Governor Fired? Evidence Based on a New Data Set," KOF Working papers 06-143, KOF Swiss Economic Institute, ETH Zurich.
- Luis Ignacio JÃ¡come & Francisco F. Vazquez, 2005.
"Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean,"
IMF Working Papers
05/75, International Monetary Fund.
- Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, EconWPA.
- Mangano, Gabriel, 1998. "Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 468-92, July.
- Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
- Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
- Alberto Alesina & Allan Drazen, 1989.
"Why are Stabilizations Delayed?,"
NBER Working Papers
3053, National Bureau of Economic Research, Inc.
- Marc Hofstetter, 2008.
"Why Have So Many Disinflations Succeeded?,"
Contemporary Economic Policy,
Western Economic Association International, vol. 26(1), pages 89-106, 01.
- Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
- Jean-FranÃ§ois Segalotto & Marco Arnone & Bernard J Laurens, 2006. "Measures of Central Bank Autonomy; Empirical Evidence for OECD, Developing, and Emerging Market Economies," IMF Working Papers 06/228, International Monetary Fund.
- Boschen, John F. & Weise, Charles L., 2001. "The Ex Ante Credibility of Disinflation Policy and the Cost of Reducing Inflation," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 323-347, July.
When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:4585. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Monica Bazan)
If references are entirely missing, you can add them using this form.