The Effects of Central Bank Independence and Inflation Targeting On Macroeconomic Performance: Evidence from Natural Experiments
I investigate the effects of central bank independence and inflation targeting on macroeconomic performance in 26 advanced economies during the period 1980 to 2011. I find that both improve macroeconomic performance but inflation targeting is the more effective arrangement. When a central bank becomes more independent, it lowers the inflation rate and the variability of inflation but has no effect on real GDP or unemployment. When a central bank becomes an inflation targeter, it lowers the inflation rate, the variability of inflation, the variability of real GDP growth and the output gap, and has no effect on unemployment.
Year of publication: |
2014
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Published in: |
Review of Economic Analysis. - ISSN 1973-3909. - Vol. 6.2014, 1, p. 1-35
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Subject: | Inflation Targeting | Central Bank Independence | Monetary Policy | Monetary Policy Instrument | Policy Effects | Short-Run Trade-Off | Short-Run Phillips Curve | Taylor Curve |
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