Working Paper BETA #2003-08

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Title : Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio

Author(s) : Giuseppe Diana, Moise Sidiropoulos

Abstract : This paper examines the impact of central bank independence on inflation persistence. Our theoretical analysis predicts that a higher degree of central bank independence leads to a lower inflation persistence and therefore to a higher speed of disinflation. The empirical results, provided using a 18 OECD countries sample, show that central bank independence is negatively related to the degree of inflation persistence. In addition, as there is a positive correlation between inflation persistence and the sacrifice ratio, we conclude that central bank independence, through its influence on inflation persistence, is negatively correlated to the sacrifice ratio.

Key-words : central bank independence, inflation persistence, speed of disinflation, sacrifice ratio

JEL Classification : E31, E52, E58