Chambers College of Business and Economics
Policymakers often want to achieve low inflation to avoid the low economic growth associated with high inflation. Reducing inflation through monetary policy (disinflation) is not costless as it can coincide with higher unemployment rates and reduced output. In this paper we use sacrifice ratios to calculate the cost of disinflation during the 1990s for 40 countries. We then study whether transparency and democratic accountability of monetary institutions reduces disinflation costs. Our empirical results suggest that more transparent central banks seem to face higher disinflation costs. This result could be because more transparent central banks have lower initial inflation rates during their disinflation episodes. Therefore, reducing inflation even further is more costly to them. We find no significant relationship between independence of central banks and the disinflation costs they faced during 1990s.
Digital Commons Citation
Motie, Golnaz B. and Hall, Joshua C., "The Effect of Transparency, Independence and Accountability of Central Banks on Disinflation Costs" (2020). Economics Faculty Working Papers Series. 43.