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Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio

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  • Giuseppe Diana
  • Moise Sidiropoulos

Abstract

This paper examines the impact of central bank independence on inflation persistence. Our theoretical analysis predicts that a higher degree of central bank independence leads to a lower inflation persistence and therefore to a higher speed of disinflation. The empirical results, provided using a 18 OECD countries sample, show that central bank independence is negatively related to the degree of inflation persistence. In addition, as there is a positive correlation between inflation persistence and the sacrifice ratio, we conclude that central bank independence, through its influence on inflation persistence, is negatively correlated to the sacrifice ratio.

Suggested Citation

  • Giuseppe Diana & Moise Sidiropoulos, 2003. "Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio," Working Papers of BETA 2003-08, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2003-08
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    More about this item

    Keywords

    central bank independence; inflation persistence; speed of disinflation; sacrifice ratio.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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