The impact of central bank independence on the performance of inflation targeting regimes

This paper examines the effects of inflation targeting on inflation in both advanced and emerging economies. We do not detect significant effects in advanced economies and only find small benefits in emerging economies, in line with previous studies. However, when we differentiate the impact of inflation targeting based on the degree of central bank independence, we find large effects in emerging economies with low central bank independence. Our results therefore suggest that central bank independence is not a prerequisite for countries to experience significant declines in inflation following the adoption of inflation targeting. Furthermore, we provide evidence that one channel through which inflation targeting lowers inflation more in countries with low central bank independence is the reduction of budget deficits following the adoption of an inflation target.     

Dynamic central bank independence indices and inflation rate: A new empirical exploration

It has been argued that economies with more independent central banks experience lower inflation over time. In this paper we show that this relationship is sensitive to the methodology through which central bank independence indices are constructed. We stress the importance of employing dynamic central bank independence indices in two ways. First, we perform unit root tests with structural breaks to verify if the implementation of central bank reforms represents a structural break for the inflation rate dynamics. Second, we implement a panel data analysis.We find evidence that legislative reforms that modify the degree of independence of a central bank have a strong impact on the inflation rate dynamics. Moreover, underlying the importance of employing dynamic central bank independence indices, we confirm the negative relationship between the latter and inflation for a sample of 10 OECD countries.     

Exchange rate pass-through in emerging countries: Do the inflation environment,monetary policy regime and central bank behavior matter?

In this paper, we estimate the exchange rate pass-through (ERPT) to import and consumer prices for a sample of 14 emerging countries over the 1994Q1-2015Q3 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for monetary stability proxied by the inflation environment, monetary policy regime and central bank behavior. We show that both the level and volatility of inflation, as well as adopting an inflation target or the transparency of monetary policy decisions clearly reduce ERPT to consumer prices. However, uncertainty about domestic monetary policy seems less relevant in explaining the pass-through to the price of imports.     

通货膨胀目标制:理论、实践及其启示——兼论我国房地产市场调控

通货膨胀目标是由官方公开宣布未来一段时间内需要达到的通货膨胀目标或区间,明确承认低的、稳定的通货膨胀率是货币政策的首要长期目标。从长期看,中央银行可以产生系统的影响的惟一宏观经济变量只有通货膨胀率。没有中央银行的默许,通货膨胀就无法扎根。虽然石油价格冲击、持久干旱、升高的税收或者新的政府法令都有可能推动物价指数上升,除非中央银行对此不闻不问,否则,通货膨胀是不可能长久存在的。     

Political monetary cycles and a de facto ranking of central bank independence

Political monetary cycles are less likely to occur in countries with independent central banks. Independent central banks can withstand political pressure to stimulate the economy before elections or finance election-related increases in government spending. Based on this logic and supporting evidence, we construct a de facto ranking of central bank independence derived from the extent to which monetary policy varies with the electoral cycle. The ranking avoids well-known problems with existing measures of central bank independence and provides independent information about average inflation and inflation volatility differences across countries.     

Managing price and financial stability objectives in inflation targeting economies in Asia and the Pacific

Many central banks have adopted explicit objectives for financial stability, raising the possibility of trade-offs between price and financial stability objectives. Based on structural vector autoregressions that incorporate both monetary and macroprudential policy shocks for four inflation targeting economies in Asia and the Pacific, we analyse the role of each policy shock in explaining deviations from the other policy’s objective, by applying historical decompositions. The macroprudential measures used in the study affect credit extended to the private sector. We find that there are periods when macroprudential policy shocks have contributed to pushing inflation away from the central bank’s inflation target and when monetary policy shocks have contributed to buoyant credit, suggesting that there have been short-term trade-offs between price and financial stability objectives. However, we also find periods when macroprudential policy shocks helped stabilise inflation and monetary policy shocks contributed to financial stability.     

The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration

This paper investigates how the trilemma policy mix affects economic performance in developing countries. We find that greater monetary independence can dampen output volatility, while greater exchange rate stability is associated with greater output volatility, which can be mitigated by reserve accumulation; greater monetary autonomy is associated with higher inflation, while greater exchange rate stability and greater financial openness is linked with lower inflation; pursuit of exchange rate stability can increase output volatility when financial development is at an intermediate stage. Greater financial openness, when accompanied by a high level of financial development, reduces output volatility.     

Does government ideology matter in monetary policy? A panel data analysis for OECD countries

This paper examines whether government ideology has influenced monetary policy in OECD countries. We use quarterly data in the 1980.1–2005.4 period and exclude EMU countries. Our Taylor-rule specification focuses on the interactions of a new time-variant index of central bank independence with government ideology. The results show that leftist governments have somewhat lower short-term nominal interest rates than rightwing governments when central bank independence is low. In contrast, short-term nominal interest rates are higher under leftist governments when central bank independence is high. The effect is more pronounced when exchange rates are flexible. Our findings are compatible with the view that leftist governments, in an attempt to deflect blame of their traditional constituencies, have pushed market-oriented policies by delegating monetary policy to conservative central bankers.     

The Impact of Central Bank Independence on Political Monetary Cycles in Advanced and Developing Nations

This paper examines the extent to which monetary policy is manipulated for political purposes during elections. We do not detect political monetary cycles in advanced countries or developing nations with independent central banks. We do find evidence, however, in developing countries that lack central bank independence. Furthermore, we find some evidence that these cycles are not caused by monetization of election-related fiscal expansions. This suggests that pressure by politicians on the central bank to exploit the Phillips curve may be an important factor in generating political monetary cycles.     

发达国家中央银行职能的理论与实践探讨

金融危机以来,主要发达国家的中央银行持续实施量化宽松政策,这在一定程度上模糊了货币政策与财政政策的界限,引起经济学界关于中央银行独立性问题的讨论。文章分析了中央银行独立性的概念和理论,回顾了主要发达国家量化宽松政策的实施过程,指出随着世界经济的逐步恢复与量化宽松政策的逐步退出,理顺政府与中央银行关系、强化中央银行的独立性对于保持经济长期稳定增长具有重要意义。     

Flexible inflation targeting and financial stability: Is it enough to stabilize inflation and output?

We investigate empirically whether a central bank can promote financial stability by stabilizing inflation and output, and whether additional stabilization of asset prices and credit growth would enhance financial stability in particular. We employ an econometric model of the Norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth, in addition to inflation and output. We find that output stabilization tends to improve financial stability. Additional stabilization of house prices, equity prices and/or credit growth enhances stability in both inflation and output, but has mixed effects on financial stability. In general, financial stability as measured by e.g., asset price volatility improves, while financial stability measured by indicators that depend directly on interest rates deteriorates, mainly because of higher interest rate volatility owing to a more active monetary policy.     

我国金属商品期货价格指数与PPI关系探析

期货价格指数在国外早已成为通货膨胀的早期预警指标,为中央银行货币政策的制定和调整提供了重要的参考。本文在借鉴国外金属商品期货价格指数编制方法的基础上．提出了符合中国国情的指数编制和修正方法,编制出我国上海期货交易所的金属商品期货价格指数。实证结果表明：以2008年1月1日至2011年4月31日为样本区间,采用最优指数编制方法．可以得出国内金属商品期货指数对生产者价格指数的先行时间达5个月,能较好反映出我国工业原材料未来出厂价格走势,这在一定程度上能为我国宏观经济政策的制定提供重要的参考。这也表明,我国金属期货市场功能近年来已趋于完善。价格发现功能得以较好体现,这是从本文经验研究结果直接得出的一个重要结论。     

How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US

This paper investigates whether there are benefits in terms of higher economic stability from incorporating stock prices into the price index targeted by the central banks. It also looks into the question of whether central banks should use stock prices as a component of the output stability index and how the index can be constructed. An optimization technique is employed to estimate weights for the various sectoral prices. The obtained weights, which depend on sectoral parameters, differ from those used in the construction of the consumer price index, CPI. Using data from the UK and the US, our analysis demonstrates that in comparison to the CPI, our measure of inflation leads to a higher output stability. Thus, in an inflation-targeting monetary policy environment, it is important to adopt a broader inflation benchmark than the CPI for the general macroeconomic stability.     

Notes on the Underground: Monetary Policy in Resource‐Rich Economies

The central bank of a commodity‐exporting small open economy faces the traditional trade‐off between domestic inflation and output gap. The commodity sector introduces a terms‐of‐trade inefficiency that gives rise to an endogenous cost‐push shock, changes the target level for output, reduces the slope of the Phillips curve, and increases the importance of stabilizing the output gap. Optimal monetary policy calls for a reduction of the interest rate following a drop in the oil price. In contrast, a central bank with a mandate to stabilize consumer price inflation raises interest rates to limit the inflationary impact of an exchange rate depreciation.     

Replacing a “Disobedient” Central Bank Governor with a “Docile” One: A Novel Measure of Central Bank Independence and Its Effect on Inflation

This paper identifies two mechanisms that empirical papers on central bank independence assume to be embedded in the yardstick measure of turnover rate of central bank governor: (i) the removal of a governor who is perceived as a challenger by the government and (ii) whether his/her replacement is an ally of the government. We identify the first mechanism with premature exits of central bankers and the second by examining whether or not the incoming governor is drawn from the ranks of the executive branch of the government. We find that only premature exits and replacements with government allies increase inflation.     

货币政策应该关注资产价格和汇率吗?

在Rudebusch and Svensson(1999)模型中引入了房地产价格、股票价格和汇率因素,以此为基础推导出最优货币政策反应函数。该反应函数显示,中央银行既要应对产出和通货膨胀变化,还应该考虑资产价格和汇率波动。基于GMM方法的实证分析表明,该反应函数能够较好刻画过去10多年间中国中央银行的货币政策。总体而言,该反应函数可以作为中国货币政策制定和执行的参考框架,货币政策应该对资产价格和汇率波动给予一定程度的关注。     

Monetary policy for inattentive economies

We offer a contribution to the analysis of optimal monetary policy. We begin with a critical assessment of the existing literature, arguing that most work is based on implausible models of inflation-output dynamics. We then suggest that this problem may be solved with some recent behavioral models, which assume that price setters are slow to incorporate macroeconomic information into the prices they set. A specific such model is developed and used to derive optimal policy. In response to shocks to productivity and aggregate demand, optimal policy is price level targeting. Base drift in the price level, which is implicit in the inflation targeting regimes currently used in many central banks, is not desirable in this model. When shocks to desired markups are added, optimal policy is flexible targeting of the price level. That is, the central bank should allow the price level to deviate from its target for a while in response to these supply shocks, but it should eventually return the price level to its target path. Optimal policy can also be described as an elastic price standard: the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate.     

On the optimal monetary policy response to noisy indicators

We describe a behavior of a central bank when its measures of current inflation and output are subject to measurement errors, in a framework of optimizing models with nominal price stickiness. In our model, a central bank sets the interest rate equal to its current estimate of the so-called Wicksellian natural rate of interest. This is shown to imply that the interest rate responds to the central bank's estimates of both current inflation and output gap, as advocated by Taylor (1993). It is also shown that the noise contained in the indicators justifies a degree of policy cautiousness. A reduced-form representation of optimal policy should exhibit interest-rate smoothing, which is often found in the empirical literature on monetary policy reaction functions.     

金融调控中的物价稳定与金融稳定:从分离到融合的逻辑演进

从历史上考察,中央银行实施货币政策和充当最后贷款人,客观上使其具有了保持物价稳定和维护金融稳定的职能。20世纪80年代以后,许多国家的金融调控出现了明显变化,逐步向稳定物价的单一目标方向发展,金融监管则出现了"去央行化"的趋势,使中央银行失去了维护金融稳定的能力和手段。经济全球化产生了很多影响物价稳定与金融稳定的新因素,要求中央银行在保持物价稳定的同时,对金融稳定给予更多关注。全球金融危机后,国际社会和主要经济体加快了宏观审慎管理体系的构建,这为解决物价稳定与金融稳定的协调配合提供了新思路。如果将物价稳定与金融稳定纳入到宏观审慎管理的视野,就有可能在金融调控中二者兼顾,建立起新的金融调控范式。     

Political Influence on the Central Bank: International Evidence

Political influence on the central bank is measured here bylooking at the probability that a central bank governor willbe replaced shortly after a political change of government.The governor changes about half the time within six months ofa nonconstitutional or other radical change of government—amilitary coup or a restoration of democracy. The governor ismuch less likely to change within six months following a routinechange in the head of government—about one-fourth of thetime in developing countries and one-tenth in industrial countries.These indicators vary across countries and correlate statisticallywith inflation and its variability and with real growth andreal interest rates. Differences in the vulnerability of thecentral bank to political instability, in political instabilityitself, and in central bank turnover in nonpolitical periodsseem to be a major part of the explanation for why developingcountries have, on average, higher and more variable inflationthan industrial countries do.