Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio

Giuseppe Diana and Moise Sidiropoulos ()
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Giuseppe Diana: BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique
Moise Sidiropoulos: Université Robert Schuman - Strasbourg III, BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

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Abstract: Using a theoretical model in which the degree of central bank independence affects the degree of inflation persistence and therefore the speed of disinflation, this paper suggests that sacrifice ratios are lower when central bank independence is higher. Empirical tests, using estimates of sacrifice ratios based on disinflation episodes for 18 OECD countries during the 1960–90 period, show that this result also holds empirically. This finding seems to be consistent with the credibility hypothesis by pointing out that an independent central bank may produce a credibility bonus.

Keywords: Central bank independence; Disinflation; Credibility; Sacrifice ratio (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (27)

Published in Open Economies Review, 2004, 15, pp.385-402. ⟨10.1023/B:OPEN.0000048526.52803.b9⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00279005

DOI: 10.1023/B:OPEN.0000048526.52803.b9

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