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Monetary policy shifts and Central Bank independence
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Qureshi, Irfan (2017) Monetary policy shifts and Central Bank independence. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1139).
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
Why does low central bank independence generate high macroeconomic instability? A government may periodically appoint a subservient central bank chairman to exploit the inflation-output trade-off, which may generate instability. In a New Keynesian framework, time-varying monetary policy is connected with a “chairman effect.” To identify departures from full independence, I classify chairmen based on tenure (premature exits), and the type of successor (whether the replacement is a government ally). Bayesian estimation using cross-country data confirms the relationship between policy shifts and central bank independence, explaining approximately 25 (15) percent of inflation volatility in developing (advanced) economies. Theoretical analyses reveal a novel propagation mechanism of the policy shock.
Item Type: | Working or Discussion Paper (Working Paper) | ||||||
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Subjects: | H Social Sciences > HG Finance | ||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||
Library of Congress Subject Headings (LCSH): | Monetary policy -- Mathematical models, Banks and banking, Central -- Political aspects, Macroeconomics, Inflation (Finance), Bankers, Developed countries -- Finance, Federal Reserve banks, Boards of directors | ||||||
Series Name: | Warwick economics research papers series (WERPS) | ||||||
Publisher: | University of Warwick. Department of Economics | ||||||
Place of Publication: | Coventry | ||||||
ISSN: | 0083-7350 | ||||||
Official Date: | September 2017 | ||||||
Dates: |
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Number: | 1139 | ||||||
Number of Pages: | 59 | ||||||
Institution: | University of Warwick | ||||||
Status: | Not Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||
Date of first compliant deposit: | 13 November 2017 | ||||||
Date of first compliant Open Access: | 13 November 2017 | ||||||
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