Has Monetary Policy Become More Efficient? a Cross Country Analysis

41 Pages Posted: 20 Dec 2004 Last revised: 27 Jun 2010

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Alfonso Flores-Lagunes

Syracuse University--Economics; Syracuse University--CPR; IZA, Bonn

Stefan Krause

Banque de France - Economic Study and Research Division; Sciences Po

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

Abstract

Over the past twenty years, macroeconomic performance has improved in industrialized and developing countries alike. In a broad cross-section of countries inflation volatility has fallen markedly while output variability has either fallen or risen only slightly. This increased stability can be attributed to either: 1) more efficient policy-making by the monetary authority, 2) a reduction in the variability of the aggregate supply shocks, or 3) changes in the structure of the economy. In this paper we develop a method for measuring changes in performance, and allocate the source of performance changes to these two factors. Our technique involves estimating movements toward an inflation and output variability efficiency frontier, and shifts in the frontier itself. We study the change from the 1980s to the 1990s in the macroeconomic performance of 24 countries and find that, for most of the analyzed countries, more efficient policy has been the driving force behind improved macroeconomic performance.

Suggested Citation

Cecchetti, Stephen G. and Flores-Lagunes, Alfonso and Krause, Stefan, Has Monetary Policy Become More Efficient? a Cross Country Analysis (December 2004). NBER Working Paper No. w10973. Available at SSRN: https://ssrn.com/abstract=633633

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

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Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Alfonso Flores-Lagunes

Syracuse University--Economics ( email )

Syracuse, NY 13244-1020
United States

HOME PAGE: http://www.maxwell.syr.edu/econ/cpr/Alfonso_Flores_Lagunes/

Syracuse University--CPR ( email )

Syracuse, NY 13244
United States

HOME PAGE: http://www.maxwell.syr.edu/econ/cpr/Alfonso_Flores_Lagunes/

IZA, Bonn ( email )

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Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/profile?key=2305

Stefan Krause

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

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