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Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach

Vasco Gabriel, Ioannis Lazopoulos () and Diana Lima

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: The paper investigates whether the institutional arrangements that determine the conduct of monetary policy and prudential regulation and supervision of the banking system influence policymakers’ actions in pursuing their designated mandates. Employing recently developed dynamic heterogeneous panel methods and using data for 25 industrialised countries from 1960 to 2018, we empirically assess whether central banks’ main objective of inflation stability is compromised when assigned with both policy mandates manifested as inflation bias. Our results show that, once we appropriately control for relevant policy and institutional factors, the separation of prudential policy and monetary policy does not have a significant effect on inflation outcomes.

JEL-codes: E21 E60 F40 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Handle: RePEc:ptu:wpaper:w202106