Openness, Central Bank Independence, and the Sacrifice Ratio

Document Type

Article

Language

eng

Format of Original

9 p.

Publication Date

4-2005

Publisher

Ohio State University Press

Source Publication

Journal of Money, Credit, and Banking

Source ISSN

0022-2879

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

Journal of Money, Credit, and Banking, Vol. 37, No. 2 (April 2005): 371-379. DOI.

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