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.     

中央银行沟通、实际干预与通货膨胀稳定

近年来,中央银行沟通已成为一种重要的货币政策工具。本文把中央银行沟通因素引入修正的卢卡斯总供给函数,发现加大中央银行沟通力度有利于引导通货膨胀预期,稳定通货膨胀。采用2003-2009年月度数据,利用结构向量自回归方法对中央银行沟通及实际干预在稳定通货膨胀中的作用进行实证研究,主要结论如下:(1)正的中央银行沟通冲击能有效降低通货膨胀预期以及名义通货膨胀率,且时滞短;(2)正的实际干预(包括银行贷款利率、央票利率及货币供应量)冲击,在短期内不但不能降低通货膨胀预期及名义通货膨胀率,反而会加剧通货膨胀,出现"价格之谜"现象。此外,本文对大多数情况下我国中央银行沟通模棱两可的合理性进行了解释。     

Central bank financial strength and inflation: Is there a robust link?

Central bank financial strength has not been a fundamental issue for a substantial period of time. However, recent theoretical and empirical studies argue that central banks need to maintain a sufficient level of financial strength to perform their functions effectively and to achieve monetary policy objectives. In this study, we examine the empirical relationship between central bank financial strength and inflation using an unbalanced panel data set for a sample of selected advanced and emerging countries. We observe a statistically significant and robust negative relationship between central bank financial strength and inflation. This relationship is robust in the presence of other determinants of inflation and for alternative estimation methods. Our results have important implications for policy makers and central bankers. Particularly, our results suggest that avoiding persistent losses and maintaining the health of the central bank balance sheet remain vital pre-conditions for desirable policy outcomes of a central bank.     

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。     

中国能进一步提高央行独立性以改善货币政策可信度吗?

中央银行独立性是决定货币政策可信度(信誉)的一个重要体制性特征因素。在中国,央行独立性受到政治基础结构、司法独立性、经济金融基础结构和社会文化环境等制度结构方面的现实约束,即便照搬西方国家经验在立法层面确立央行独立性,这种外生的法定独立性也不能转化为真正的实践准则;在当下的中国要改善货币政策可信度,不能期望进一步提高央行独立性来实现,而应寻求其他路径。     

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.     

Measuring the Independence of Central Banks and Its Effect on Policy Outcomes

Making the central bank an agency with the mandate and reputationfor maintaining price stability is a means by which a governmentcan choose the strength of its commitment to price stability.This article develops four measures of central bank independenceand explores their relation with inflation outcomes. An aggregatelegal index is developed for four decades in 72 countries. Threeindicators of actual independence are developed: the rate ofturnover of central bank governors, an index based on a questionnaireanswered by specialists in 23 countries, and an aggregationof the legal index and the rate of turnover. Legal independence is inversely related to inflation in industrial,but not in developing, countries. In developing countries theactual frequency of change of the chief executive officer ofthe bank is a better proxy for central bank independence. Aninflation-based index of overall central bank independence contributessignificantly to explaining cross-country variations in therate of inflation.     

Openness, the sacrifice ratio, and inflation: Is there a puzzle?

The standard time-inconsistency-based explanation for the negative correlation between openness and inflation requires an inverse relationship between the sacrifice ratio and openness, but Daniels et al. (2005, Openness, central bank independence, and the sacrifice ratio. Journal of Money, Credit, and Banking 37 (2), 371–379.) have provided evidence that controlling for central bank independence reveals a positive relationship. This paper embeds the time-inconsistency approach within a model of a multisector, imperfectly competitive, open economy. In this setting, greater openness raises the sacrifice ratio but reduces the inflation bias. Thus, failure to observe an inverse relationship between openness and the sacrifice ratio does not necessarily imply that the time-inconsistency approach is irrelevant to understanding the openness–inflation relationship.     

Inflation Targeting,Fiscal Policy,and the Exchange Rate Regime

Until recently, Turkey’s economy was characterized by high inflation, undisciplined public finance management, and a fragile banking system and experienced multiple economic crises. After the economy was hit by another crisis in 2001, the central bank became independent, adopted inflation targeting as the monetary policy framework, and implemented reforms to adopt a more stringent fiscal policy. Inflation rates decreased to single-digit levels within 3 years after the independence of the central bank. This article analyzes the end of the high inflation period in the context of monetary and fiscal policy interactions within a Markov-Switching Dynamic Stochastic General Equilibrium model in which monetary and fiscal policies are allowed to switch between different regimes.     

中央银行独立性与资产负债管理

金融危机后，各同中央银行的独立性和资产负债管理引起专家学者的重视。中央银行的独立性影响其调控经济的能力，不同独立性下的经济调控反映在资产负债表上就是各具特色的资产负债管理。本文分别研究了美联储、日本银行和中国人民银行的独立性和资产负债管理，以期对我国中央银行的独立性和资产负债管理提供有益借鉴。     

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.     

Monetary Policy Inclinations

We examine whether central banks should complement their inflation forecasts with interest rate projections. Introducing a central bank loss function that accounts for deviations from announcements, we incorporate the publication of policy inclinations into a dynamic monetary model. We show that in the presence of cost‐push shocks, the publication of interest rate forecasts tends to improve welfare.     

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。     

Macroeconomic policies and performance in Latin America

This paper provides new evidence on macroeconomic policies and results in Latin America and the Caribbean. Results are: (i) credibility allows adoption of counter-cyclical macroeconomic policies; (ii) accuracy in meeting inflation targets depends on central bank independence and country risk; (iii) intermediate exchange rate (ER) regimes have become less persistent; (iv) ER regimes matter for inflation and growth; (v) real ER trends are not explained by productivity growth and supply reforms do not resolve real ER misalignments; (vi) financial integration has increased significantly; (vii) foreign shocks are a major growth determinant; and (viii) composition of foreign capital inflows matters for growth.     

Optimal central bank transparency

Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. As a result, inflation is set in a more backward looking manner resulting in higher inflation persistence. By using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while several central banks would benefit from further transparency increases, some already have reached the optimal level.     

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.     

Uncovering the Hit List for Small Inflation Targeters: A Bayesian Structural Analysis

We estimate underlying structural macroeconomic policy objectives of three of the earliest explicit inflation targeters within the context of a small open economy dynamic stochastic general equilibrium model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective. None of the central banks show a concern for stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. We also show that the resulting optimal policy rule responds to exchange rate movements, even in the case where the central banks do not explicitly care about exchange rate stabilization. This result is also corroborated by results from an alternative simple-rule characterization and estimation of central bank behavior. These last two findings point to the pitfalls of making inferences, from the level of ad hoc simple rules, about what central banks may care about.     

Inflation targeting,credibility, and non-linear Taylor rules

In this paper we systematically evaluate how central banks respond to deviations from the inflation target. We present a stylized New Keynesian model in which agents' inflation expectations are sensitive to deviations from the inflation target. To (re-) establish credibility, monetary policy under discretion sets higher interest rates today if average inflation exceeded the target in the past. Moreover, the central bank responds non-linearly to past inflation gaps. This is reflected in an additional term in the central bank's instrument rule, which we refer to as the ”credibility loss.” Augmenting a standard Taylor (1993) rule with the latter term, we provide empirical evidence for the interest rate response for a sample of five inflation targeting (IT) economies. We find, first, that past deviations from IT feed back into the reaction function and that this influence is economically meaningful. Deterioration in credibility (ceteris paribus) forces central bankers to undertake larger interest rate steps. Second, we detect an asymmetric reaction to positive and negative credibility losses, with the latter dominating the former.     

四十年来中央银行的研究进展及中国的实践

改革开放四十年来,中国金融体系从无到有,发生了翻天覆地的变化,目前已基本建成了与中国特色社会主义市场经济相适应、具有活力和国际竞争力的现代金融体系。这四十年,现代货币经济学和全球中央银行政策实践也发生了深刻变革。作为全球最大的新兴发展加转轨经济体的中央银行,中国人民银行面临的现实约束条件更加复杂,央行的研究为推动中国金融体系发展和央行科学决策提供了可靠支撑,既与世界同步,也具有自己的鲜明特征。本文以世界经济十年左右的周期波动及与之相伴随的货币经济学理论进展和中央银行政策变迁为主线,总结了四十年来中央银行的研究进展和中国经验,旨在进一步推动中央银行的理论研究,更好地促进金融高质量发展。     

When does a central bank׳s balance sheet require fiscal support?

Using a simple, general equilibrium model, we argue that it would be appropriate for a central bank with a large balance sheet composed of long-duration nominal assets to have access to, and be willing to ask for, support for its balance sheet by the fiscal authority. Otherwise its ability to control inflation may be at risk. This need for balance sheet support — a within-government transaction — is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank׳s balance sheet is merged with that of the rest of the government.