Central bank independence and the sacrifice ratio

This paper analyzes the impact of central bank independence on the sacrifice ratio. A monetary game model is constructed where the output depends on past inflation due to some indexation in the economy and where the slope of the short-run Phillips curve depends on the average inflation rate. The mod...

Full description

Saved in:
Bibliographic Details
Published in:European Journal of Political Economy 1999-06, Vol.15 (2), p.229-255
Main Author: Jordan, Thomas J.
Format: Article
Language:English
Subjects:
Banking
Central bank independence
Central banks
Europe
Independence
Inflation
Monetary Policy
Phillips curve
Sacrifice ratio
Stabilization policy
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper analyzes the impact of central bank independence on the sacrifice ratio. A monetary game model is constructed where the output depends on past inflation due to some indexation in the economy and where the slope of the short-run Phillips curve depends on the average inflation rate. The model predicts the following main results: A higher degree of central bank independence leads to a higher sacrifice ratio. There is no general positive correlation between the degree of central bank independence and output variance. Stabilization policy in each period is linked to past inflation. The higher past inflation, the less the policymaker stabilizes an output shock. From a welfare point of view, the model shows that the sacrifice ratio is not an appropriate measure to assess the costs of central bank independence.
ISSN:0176-2680
1873-5703
DOI:10.1016/S0176-2680(99)00005-1