Establishing a Hawkish Reputation: Interest Rate Setting by Newly Appointed Central Bank Governors
RWTH Aachen University - School of Economics and Business Administration; University of Marburg - Faculty of Economics and Business Administration
November 19, 2012
MAGKS Joint Discussion Paper Series in Economics No. 46-2012
In this paper, we explore the interest rate setting behavior of newly appointed central bank governors. We use the Kuttner and Posen (2010) sample, which covers 15 OECD countries, and estimate an augmented Taylor (1993) rule for the period 1974–2008. We find, first, that newly appointed governors fight inflation more aggressively during the first four to eight quarters of their tenure in an effort to establish a reputation for being inflation averse. Second, we find a significantly stronger reaction to inflation by newly appointed governors working within monetary policy frameworks comprised of an at least partly independent central bank and an explicit nominal anchor.
Number of Pages in PDF File: 18
Keywords: central bank governors, credibility, inflation, monetary policy, reputation, Taylor rules
JEL Classification: E31, E43, E52, E58working papers series
Date posted: November 20, 2012 ; Last revised: December 5, 2012
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