Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach

The paper investigates whether the institutional arrangements that determine the conduct of monetary and prudential policies influence policymakers' actions in pursuing their designated mandates. Employing recently developed dynamic heterogeneous panel methods and using data for 25 industrializ...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2023-02, Vol.55 (1), p.43-76
Main Authors: GABRIEL, VASCO J., LAZOPOULOS, IOANNIS, LIMA, DIANA
Format: Article
Language:English
Subjects:
Bias
Central banks
Industrialized nations
Inflation
institutional mandates
Longitudinal studies
Monetary policy
panel data
Policy making
prudential regulation
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Summary:The paper investigates whether the institutional arrangements that determine the conduct of monetary and prudential policies influence policymakers' actions in pursuing their designated mandates. Employing recently developed dynamic heterogeneous panel methods and using data for 25 industrialized countries from 1960 to 2018, we empirically assess whether central banks' main objective of inflation stability is compromised when assigned with both policy mandates manifested as inflation bias. Our results show that, once we appropriately control for relevant policy and institutional factors, the separation of macroprudential regulation and monetary policy does not have a significant effect on inflation outcomes.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12935