Escaping the Ties That Bind: Exchange Rate Choice Under Central Bank Independence

2007 ◽  
Vol 40 (7) ◽  
pp. 808-831 ◽  
Author(s):  
Angela O'Mahony
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Central Bank Independence

Brazilian Inflation from 1980 to 1993: Causes, Consequences and Dynamics

1996 ◽  
Vol 28 (3) ◽  
pp. 635-666 ◽  
Author(s):  
G. Tullio ◽  
M. Ronci
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Central Bank Independence ◽  
Budget Deficits ◽  
The Government ◽  
Exchange Rate Shocks

AbstractThis article focuses on Brazilian inflation: its causes, consequences and dynamics from 1980 to 1993. We argue that the main economic cause of the Brazilian inflation was the excessive growth of money, in turn caused by too high budget deficits. Oil and exchange rate shocks also played a role, together with the greater dependence of the Central Bank of Brazil on the government. We measure the degree of Central Bank independence by the variable ‘turnover’ of Central Bank governors defined as the number of months in office. The effect of this variable on inflation is found to be highly significant and positive.

The Effectiveness of Monetary Policy Anchors: Firm-Level Evidence

2010 ◽  
Vol 64 (4) ◽  
pp. 695-717 ◽  
Author(s):  
J. Lawrence Broz ◽  
Michael Plouffe
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Private Sector ◽  
Central Bank ◽  
Inflation Targeting ◽  
Substantial Reduction ◽  
Central Bank Independence ◽  
Inflation Expectations ◽  
Firm Level ◽  
Level Data

AbstractAnalyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence can help anchor private-sector inflation expectations. Yet there are few direct tests of this argument. We offer cross-national, micro-level evidence on the effectiveness of monetary anchors in controlling private-sector inflation concerns. Using firm-level data from eighty-one countries (approximately 10,000 firms), we find evidence that “international” anchors (exchange-rate commitments) correlate significantly with a substantial reduction in private-sector concerns about inflation while “domestic” anchors (inflation targeting and central bank independence) do not. Our conjecture is that private-sector inflation expectations are more responsive to exchange-rate anchors because they are more transparent, more constraining, and more costly than domestic anchoring arrangements.

scholarly journals The Political Economy of Monetary Institutions

2002 ◽  
Vol 56 (4) ◽  
pp. 693-723 ◽  
Author(s):  
William Bernhard ◽  
J. Lawrence Broz ◽  
William Roberts Clark
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Open Economy ◽  
Political Institutions ◽  
Exchange Rate Regime ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Party Competition ◽  
Policy Objectives ◽  
Exchange Rate Arrangements

In recent decades, countries have experimented with a variety of monetary institutions, including alternative exchange-rate arrangements and different levels of central bank independence. Political economists have analyzed the choice of these institutions, emphasizing their role in resolving both the time-inconsistency problem and dilemmas created by an open economy. This “first-generation” work, however, suffers from a central limitation: it studies exchange-rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other. By contrast, the contributors to this volume analyze the choice of exchange-rate regime and central bank independence together and, in so doing, present a “second generation” of research on the determinants of monetary institutions. The articles incorporate both economic and political factors in explaining the choice of monetary institutions, investigating how political institutions, democratic processes, political party competition, and interest group pressures affect the balance between economic and distributional policy objectives.

scholarly journals Checks and Balances, Private Information, and the Credibility of Monetary Commitments

2002 ◽  
Vol 56 (4) ◽  
pp. 751-774 ◽  
Author(s):  
Philip Keefer ◽  
David Stasavage
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Political Institutions ◽  
Private Information ◽  
Strong Support ◽  
Central Bank Independence ◽  
Information Asymmetries ◽  
The Public ◽  
Two Factors ◽  
The Impact

In this article, we argue that the effectiveness of central bank independence and exchange-rate pegs in solving credibility problems is contingent on two factors: political institutions and information asymmetries. However, the impact of these two factors differs. We argue that the presence of one institution—multiple political veto players—should be crucial for the effectiveness of central bank independence, but should have no impact on the efficacy of exchange-rate pegs. In contrast, exchange-rate pegs should have a greater anti-inflationary impact when it is difficult for the public to distinguish between inflation generated by policy choice and inflation resulting from exogenous shocks to the economy. Such information asymmetries between the public and the government, however, do not increase the efficacy of central bank independence. Empirical tests using newly developed data on political institutions provide strong support for our hypotheses.

Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy

2000 ◽  
Vol 94 (2) ◽  
pp. 323-346 ◽  
Author(s):  
William Roberts Clark ◽  
Mark Hallerberg
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Central Bank ◽  
Open Economy ◽  
Capital Mobility ◽  
Formal Model ◽  
Central Bank Independence ◽  
Mobile Capital ◽  
The Exchange Rate ◽  
Monetary And Fiscal Policy

The literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics: Capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible. Similarly, examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether. We develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence. We test the model using data from OECD countries. We find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low; preelectoral fiscal expansions occur when the exchange rate is fixed. We then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in Europe.

scholarly journals Rulers of the game: central bank independence during the interwar years

1996 ◽  
Vol 50 (3) ◽  
pp. 407-443 ◽  
Author(s):  
Beth A. Simmons
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rate Regime ◽  
Central Banks ◽  
Central Bank Independence ◽  
Price Stability ◽  
Left Wing ◽  
Domestic Price ◽  
External Adjustment ◽  
Fixed Exchange Rate

Central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange-rate regimes. Because central banks act to counteract domestic inflation, they put a premium on domestic price stability at the expense of international monetary stability. Evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment. Central banks in general were more restrictive under left-wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration. This suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange-rate regime.

Sign in / Sign up

Export Citation Format

Share Document