Has Monetary Policy Become More Efficient? A Cross Country Analysis

Stephen Cecchetti, Alfonso Flores-Lagunes () and Stefan Krause Montalbert

No 10973, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (23)

Published as Cecchetti, Stephen G., Alfonso Flores-Lagunes and Stefan Krause. "Has Monetary Policy Become More Efficient? A Cross-Country Analysis," Economic Journal, 2006, v116(511,Apr), 408-433.

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