The ultimate determinants of central bank independence

S.C.W. Eijffinger, E. Schaling

Research output: Working paperDiscussion paperOther research output

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Abstract

Using a graphical method, a new way of determining the optimal degree of central bank conservativeness is developed in this paper. Unlike Lohmann (1992) and Rogoff (1985), we are able to express the upper and lower bounds of the interval containing the optimal degree of conservativeness in terms of the structural parameters of the model. Next, we show that optimal central bank independence is higher, the higher the natural rate of unemployment, the greater the benefits of unanticipated inflation, the less inflation-averse society, and the smaller the variance of productivity shocks. These propositions are tested for nineteen industrial countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, New Zealand, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States) for the post-Bretton-Woods period (1960-1993). In testing the model we employ a latent variables method (LISREL) in order to distinguish between actual and optimal monetary regimes.
Original languageEnglish
PublisherUnknown Publisher
Number of pages30
Volume1995-5
Publication statusPublished - 1995

Publication series

NameCentER Discussion Paper
Volume1995-5

Fingerprint

Central bank independence
Inflation
Ireland
Italy
Canada
Structural parameters
Austria
Central bank
Denmark
Spain
Sweden
Germany
Upper bound
Norway
Belgium
New Zealand
Bretton Woods
Latent variables
Japan
France

Keywords

  • Central Banks
  • Monetary Policy
  • monetary economics

Cite this

Eijffinger, S. C. W., & Schaling, E. (1995). The ultimate determinants of central bank independence. (CentER Discussion Paper; Vol. 1995-5). Unknown Publisher.
Eijffinger, S.C.W. ; Schaling, E. / The ultimate determinants of central bank independence. Unknown Publisher, 1995. (CentER Discussion Paper).
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Eijffinger, SCW & Schaling, E 1995 'The ultimate determinants of central bank independence' CentER Discussion Paper, vol. 1995-5, Unknown Publisher.

The ultimate determinants of central bank independence. / Eijffinger, S.C.W.; Schaling, E.

Unknown Publisher, 1995. (CentER Discussion Paper; Vol. 1995-5).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - The ultimate determinants of central bank independence

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AU - Schaling, E.

N1 - Pagination: 30

PY - 1995

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N2 - Using a graphical method, a new way of determining the optimal degree of central bank conservativeness is developed in this paper. Unlike Lohmann (1992) and Rogoff (1985), we are able to express the upper and lower bounds of the interval containing the optimal degree of conservativeness in terms of the structural parameters of the model. Next, we show that optimal central bank independence is higher, the higher the natural rate of unemployment, the greater the benefits of unanticipated inflation, the less inflation-averse society, and the smaller the variance of productivity shocks. These propositions are tested for nineteen industrial countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, New Zealand, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States) for the post-Bretton-Woods period (1960-1993). In testing the model we employ a latent variables method (LISREL) in order to distinguish between actual and optimal monetary regimes.

AB - Using a graphical method, a new way of determining the optimal degree of central bank conservativeness is developed in this paper. Unlike Lohmann (1992) and Rogoff (1985), we are able to express the upper and lower bounds of the interval containing the optimal degree of conservativeness in terms of the structural parameters of the model. Next, we show that optimal central bank independence is higher, the higher the natural rate of unemployment, the greater the benefits of unanticipated inflation, the less inflation-averse society, and the smaller the variance of productivity shocks. These propositions are tested for nineteen industrial countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, New Zealand, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States) for the post-Bretton-Woods period (1960-1993). In testing the model we employ a latent variables method (LISREL) in order to distinguish between actual and optimal monetary regimes.

KW - Central Banks

KW - Monetary Policy

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PB - Unknown Publisher

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Eijffinger SCW, Schaling E. The ultimate determinants of central bank independence. Unknown Publisher. 1995. (CentER Discussion Paper).