Breaking Credibility in Monetary Policy: The Role of Politics in the Stability of the Central Banker

By R. Rueda, M. Ricardo. 2008

160 citations recorded by the source corpus.

This paper studies the relationship between the hazard rate of the exit of a president of a central bank and a measure of credibility in monetary policy. The expected hazard rate of exit is estimated as a function of legal and political variables. The measure of credibility is the expected probability of a disinflation beginning when inflation is rising. For a sample of 22 Latin American and G7 countries, I find a negative relationship between the hazard rate of exit and the measure of credibility. This provides evidence of the expected relationship between independence and credibility not found in previous cross country studies. Using the executives party ideology as a measure of aversion to inflation, there was no evidence that this relationship is different for countries where the government is identified as more conservative. However, when a president of the central bank appointed by a conservative government is in office, a rise in the probability of a disinflation beginning when inflation was rising was found. The results show that legal independence after controlling for the hazard rate of the presidents exit is not associated with credibility gains.

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Citations in the corpus

Measuring and explaining government efficiency in developing countries (2007, background): “Ablo and Reinikka ( 1998 ) and Reinikka and Svensson ( 2001 ) reveal that during the period 1991–95 only 13 per cent of central government non-wage expenditure on education in Uganda actually reached schools.”
Corruption in Public Service delivery: an experimental Analysis (2009, background): “In the case of wages and monitoring, empirical investigations have, with few exceptions (Ablo and Reinikka, 1998; Fisman and Gatti, 2000; Svensson, 2003), been based on cross-country perception data.”
Using Micro-Surveys to Measure and Explain Corruption (2006, methodology): “To test this hypothesis, a PETS was conducted to compare budget allocations to actual spending through various tiers of government, including frontline service delivery points, that is, primary schools (Ablo & Reinikka, 1998; Reinikka, 2001).”