Monetary Commitment, Institutional Constraints and Inflation: Empirical Evidence for OECD Countries Since the 1970s

28 Pages Posted: 12 Jun 2007

See all articles by Andreas Freytag

Andreas Freytag

University of Jena - Department of Economics

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Date Written: May 2007

Abstract

Central bank independence (CBI) is a very important precondition for price stability. However, the empirical evidence for a correlation between both is relatively weak. In this paper, this weakness is countered with a) an extended measure of monetary commitment, which includes well-known criteria for CBI and external criteria such as convertibility and exchange rate regimes and b) the argument that monetary commitment can grant price stability best if it is backed by an adequate assignment of economic policy. An empirical assessment with data from four decades confirms the crucial role of monetary commitment for price stability.

Keywords: central bank independence, price stability, monetary commitment

JEL Classification: E50

Suggested Citation

Freytag, Andreas and Schneider, Friedrich G., Monetary Commitment, Institutional Constraints and Inflation: Empirical Evidence for OECD Countries Since the 1970s (May 2007). CESifo Working Paper No. 2001, Jena Economic Research Paper No. 2007-002, Available at SSRN: https://ssrn.com/abstract=993014

Andreas Freytag

University of Jena - Department of Economics ( email )

Carl-Zeiss-Str. 3
07743 Jena
Germany

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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