Central bank independence and disinflationary credibility: a missing link?

Granting central banks independence is widely assumed to decrease inflation by increasing the credibility of commitments to price stability. This paper analyzes public- and private-sector behavior in a sample of 17 OECD countries for evidence of variations in disinflationary credibility with monetar...

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Bibliographic Details
Published in:Oxford economic papers 1998-07, Vol.50 (3), p.335-359
Main Author: Posen, Adam
Format: Article
Language:English
Subjects:
Analysis
Central bank independence
Central banks
Coefficients
Credibility
Disinflation
Economic aspects
Economic policy
Government
Independence
Inflation
Inflation (Finance)
Inflation controls
Inflation rate
Inflation rates
Monetary policy
Nominal rigidities
Nominal wages
OECD
Politics
Price control
Price stability
Private sector
Public sector
Statistical analysis
Studies
Citations: Items that cite this one
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Summary:Granting central banks independence is widely assumed to decrease inflation by increasing the credibility of commitments to price stability. This paper analyzes public- and private-sector behavior in a sample of 17 OECD countries for evidence of variations in disinflationary credibility with monetary institutions. The paper does not find evidence that the costs of disinflation are lower in countries with independent central banks. It also finds no evidence that independence inhibits collection of seignorage revenues or electoral manipulation of policy. These results raise questions about some explanations of the negative correlation between central bank independence and inflation.
ISSN:0030-7653
1464-3812
DOI:10.1093/oxfordjournals.oep.a028650