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Effective Monetary Policy Conservatism: A Comparison of 13 OECD Countries
Author(s) -
Berlemann Michael,
Hielscher Kai
Publication year - 2013
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12011
Subject(s) - conservatism , independence (probability theory) , central bank , economics , monetary policy , inflation (cosmology) , monetary economics , inflation targeting , monetary reform , bank rate , macroeconomics , political science , politics , statistics , mathematics , physics , theoretical physics , law
Empirical studies of the influence of central bank independence and inflation have yet delivered quite inconclusive results. We argue this to be due to the failure to focus an actual central bank independence and to take the degree of conservatism of the government and the central bank into account. In this paper, we propose a new methodology of measuring the joint degree of central bank independence and conservatism from observed central bank behaviour. After applying the method to 13 OECD countries, we find our indicator to be negatively correlated with a legal index of central bank independence, but positively correlated with the turnover rate. As the latter exclusively focuses on factual central bank independence, the remaining difference might be attributed to conservatism.