Central bank independence - only part of the inflation story: a comment
Article Abstract:
Heylen and Van Poeck (HVP) have commented that central bank independence is related to inflation which may be due to some factors affecting the price level. HVP used the Barro-Gordon model to study the effect of central bank independence on political variables and the inflation performance of a country. However, the theory behind HVP's study is not enough to determine the relation of central bank independence with other political and institutional variables because it ignored the use of game-theoretic analysis on labour union and central bank and its empirical analysis is not very realistic.
Publication Name: De Economist
Subject: Economics
ISSN: 0013-063X
Year: 1996
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Article Abstract:
Heylen and Van Poeck explained that their article "Central Bank Independence: Only Part of the Inflation Story" was misinterpreted because it merely explains the relationship of central bank independence with inflation and excludes the problems between credibility and flexibility. The impact of central bank independence on inflation depends on the economy's political and labour market characteristics, while the effect of political and labour market characteristics on inflation depends on the degree of central bank independence. Other explanations to the comment are discussed.
Publication Name: De Economist
Subject: Economics
ISSN: 0013-063X
Year: 1996
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Central bank independence: only part of the inflation story
Article Abstract:
An analysis of the theory that countries with an independent central bank achieve better price stability shows that the benefits of increasing central bank independence are greater in countries with unstable governments not committed to a fixed exchange rate scheme. The effects of increasing central bank independence is also determined by the natural rate of unemployment and slope of the short-term Phillips curve.
Publication Name: De Economist
Subject: Economics
ISSN: 0013-063X
Year: 1996
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