Does the dynamic time consistency model of inflation explain cross-country differences in inflations dynamics?

Dynamic time consistency models of monetary policy imply that the size of the inflationary response to price shocks and the persistence of inflation is inversely related to factors that enhance the central bank’s ability to commit to low average inflation. Hence these models predict that the dynamic...

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Bibliographic Details
Published inJournal of international money and finance Vol. 23; no. 5; pp. 735 - 759
Main Authors Boschen, John F., Weise, Charles L.
Format Journal Article
LanguageEnglish
Published Kidlington Elsevier Ltd 01.09.2004
Elsevier
Elsevier Science Ltd
SeriesJournal of International Money and Finance
Subjects
Central bank
Economic models
Inflation
Manycountries
Monetary policy
Studies
Time
Time consistency
E31
E42
Inflation
Time consistency
Monetary policy
E58
Central bank
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Summary:Dynamic time consistency models of monetary policy imply that the size of the inflationary response to price shocks and the persistence of inflation is inversely related to factors that enhance the central bank’s ability to commit to low average inflation. Hence these models predict that the dynamics of inflation vary over time and across countries in response to changes in measures of political support for low inflation. We find support for this hypothesis in data from eighteen OECD countries over the period 1961–94. However, political variables account for only a small fraction of the variation in inflation dynamics across countries.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2004.03.010