Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship?

Zied Ftiti (), Abdelkader Aguir () and Mounir Smida
Additional contact information
Abdelkader Aguir: 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
Mounir Smida: Université de Sousse

Post-Print from HAL

Abstract: Since the seminal paper of Kydland and Prescott (1977), a central bank's independence (CBI) has been considered an important institutional condition for achieving lower inflation. Recently, however, this long-held belief has been challenged. This paper investigates the relationship between CBI and inflation for a large sample (91 countries) covering the period from 1990 to 2014. We follow the previous literature by considering differences across national monetary regimes in explaining this relationship. Our approach also traces the sources of the inflationary phenomenon. Using panel data and the turnover indicator as a proxy for CBI, we offer two main findings. First, we identify the role of exchange rate regimes in the dynamic between inflation and CBI. Second, our results show that only intermediate and flexible exchange rate regimes are appropriate in this relationship. This finding is explained by the level of CBI, which is very low for countries with a fixed exchange rate policy and low income levels. For policymakers, our results highlight the importance of the choice of monetary regime in controlling inflation in the presence of CBI. For public agents, our results provide guidelines for formulating expectations.

Keywords: exchange rate regime; monetary policy; turnover; income level; panel data (search for similar items in EconPapers)
Date: 2017-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Economic Modelling, 2017, 67, pp.215 - 227. ⟨10.1016/j.econmod.2016.12.013⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01746100

DOI: 10.1016/j.econmod.2016.12.013

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().