Monetary policy transparency, inflation and the sacrifice ratio

Georgios Chortareas, David Stasavage, Gabriel Sterne

Research output: Contribution to journalArticle

Abstract

We examine how inflation and the costs associated with disinflation episodes are related to monetary policy transparency. We develop a simple model that demonstrates how transparency may result in lower inflation. Our empirical results show that in general, transparency may be associated with lower inflation across a broad range of countries and frameworks. In addition, the output costs of disinflation, as measured by the sacrifice ratio, are negatively related to the degree of monetary policy transparency. The capacity of the central bank to limit the monetary financing of government deficits also has an inflation-reducing effect. Considering transparency as a possible determinant of cross-country differences in the costs of disinflation represents a new contribution to the literature, especially given the failure of previous empirical research to find a robust negative relationship between other aspects of the central bank's institutional design and the sacrifice ratio.

Original languageEnglish (US)
Pages (from-to)141-155
Number of pages15
JournalInternational Journal of Finance and Economics
Volume7
Issue number2
DOIs
StatePublished - 2002

Keywords

  • Forecast
  • Inflation
  • Sacrifice ratio
  • Transparency

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Monetary policy transparency, inflation and the sacrifice ratio'. Together they form a unique fingerprint.

  • Cite this