Research Discussion Papers, Bank of Finland
Martin T Bohl
The quality of monetary policy and inflation performance: globalization and its aftermath
(), David G Mayes
() and Pierre L Siklos
Abstract: With a few unfortunate exceptions the last three decades
have seen reductions in inflation around the world to the point that many
would argue that further improvements in price stability would offer only
limited welfare gains. This experience is the result of many factors, some
of which are country-specific. In this paper we seek to isolate one of the
factors, namely, the improvement in the quality of monetary policy. There
are two novel aspects to the study. Firstly, we essentially estimate a
gravity-like model. Secondly, we propose generally a more exhaustive
analysis of the potential role of a large number of institutional factors
than has been done before. Briefly, we find that institutional factors play
a role in explaining inflation relative to the US experience, which is used
as the benchmark. Nevertheless, any reduction in inflation stemming from
greater central bank autonomy is a feature of the 1980s and early 1990s.
Thereafter, central banks in the OECD look very much alike.
Keywords: globalization; inflation differentials; monetary policy strategy; institutional change; (follow links to similar papers)
JEL-Codes: C33; E42; E58; (follow links to similar papers)
51 pages, November 9, 2009
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