Central Bank Independence and Sacrifice Ratios: Some Further Considerations

The existing literature reports a positive relationship between sacrifice ratios and central bank independence. This paper discusses two critical points related to the usual procedures employed by this literature. One concerns the issue of non-stationarity of the inflation rate, the other the problem of correlation between the error terms for different disinflation episodes in the same country. The way in which the sacrifice ratio-central bank independence relationship is tested is reconsidered taking into account these points. Our results shed considerable doubts on the nature and robustness of such a relationship and on the usual interpretation given to it in the literature.