Title

Openness, Central Bank Independence, and the Sacrifice Ratio

Document Type

Article

Publication Date

4-2005

Source Publication

Journal of Money, Credit, and Banking

Abstract

Traditional explanations of the negative correlation between openness and inflation presume that an inverse relationship between the degree of openness and the sacrifice ratio reduces the inflation bias of discretionary monetary policy. Temple (2002) concludes, however, that such a relationship fails to emerge in cross-country data. Our analysis of the same cross-country data considered by Temple indicates that once the degree of central bank independence and its interaction with greater openness is considered, there is an unambiguous positive relationship between openness and the sacrifice ratio. In addition, increased openness lessens the positive effect of central bank independence on the sacrifice ratio.

Comments

Originally published in Journal of Money, Credit, and Banking, Volume 37, No. 2 (April 2005).

The published version of the journal article is available here.