اعتبار اطلاعیه های سیاست های پولی: شواهد تجربی برای کشورهای OECD از سال 1960s

Monetary policy rules have been considered as fundamental protection against inflation. However, empirical evidence for a correlation between monetary commitment to rules and price stability is relatively weak. We discuss likely causes for this weak link and argue that monetary commitment is not necessarily credible by itself without adequate policy assignment and an institutional framework enforcing the commitment. We further propose a proxy variable for monetary credibility in an empirical assessment of our theoretical arguments based on panel data covering 22 OECD countries and five decades. Results confirm the crucial role of a credibly backed monetary commitment for price stability.

In the last two decades, there have been low inflation rates in many countries and a widespread consensus among policymakers, central bankers as well as economists about the virtues of price stability and the need for the independence of central banks from daily politics. However, latest developments in OECD countries have put this consensus into question and have cast doubt about future low inflation policies. The Federal Reserve has spent billions of US dollars to purchase US government bonds and other assets in the context of its policy of quantitative easing. In addition, the European Central Bank's introduction of the Outright Monetary Transactions (OMT) program and the announcement to do “whatever it takes” to rescue the Euro can be interpreted as a move towards a policy of indirectly and conditionally financing public debt without limits. It cannot be easily judged whether this policy move has been a voluntary action by the ECB or a reaction to explicit pressure from politicians. In any case, these developments have raised fears that, at least over the long term, price stability in the developed world is under threat which could have negative consequences for both economic growth and distribution. The history of central banking indeed shows that the political pressure on central banks to accommodate fiscal needs increases in times of fiscal problems. This phenomenon is often referred to as “fiscal dominance”. Wood (2005, p. 6) has put it as follows: “In any case, monetary policy is at bottom a political decision.” Against this background, the question again emerges of which institutional arrangement is suited best for preventing inflation not only in the developing world, but also in Europe and the United States. To approach an answer to this question, it seems worthwhile to take a look at the long-term development of inflation rates in developed countries. In this paper, we focus at this long-term perspective in order to identify the drivers of inflation in OECD countries since the 1960s. A focus lies on the institutional setting that governs the relation between central banks, governments and the public. In particular, it is necessary to inspect aspects of reputation and credibility of monetary policy more closely. Why is the analysis of credibility so important? The parallel developments of world-wide decreasing inflation and increasing central bank independence (CBI) is backed by the direct statistical relationship between legal CBI and price stability which is strong for developed countries, but somewhat weak when calculated for both developing and developed countries (Arnone, Laurens and Segalotto, 2006, Arnone, Laurens, Segalotto, et al., 2006 and Klomp and de Haan, 2010). It is even more doubtful whether the observed correlation also reflects a causal relationship from high CBI to low inflation as there may be other drivers of the relation between CBI and inflation (e.g. Berger, de Haan, & Eijffinger, 2001). Recent contributions to the literature treat central bank independence as endogenous and the result of political interests (e.g. Crowe & Meade, 2007). Others discuss the question of whether or not the recent global financial and economic crisis has substantially changed the role of central banks and their independence (Capie and Wood, 2012, Cukierman, 2013 and Walsh, 2011). Therefore, it is worthwhile to rethink the role of monetary policy rules. It seems insufficient to trace back inflation exclusively to political commitment to a certain monetary policy framework. Instead, the focus has to be shifted towards the question of what makes a monetary policy rule credible. In our paper, we contribute to the literature in the following way: We first discuss briefly several aspects of monetary commitment, including central bank independence, governance, transparency and accountability. We argue that none of these concepts is sufficient to make monetary policy credible. For this purpose, workable enforcement mechanisms must be established in the institutional setting. Following this theoretical assessment, we empirically test the derived hypotheses. To this end, we propose a proxy variable for our theoretical concept of monetary credibility and apply this variable in a panel analysis covering 22 OECD countries and five decades beginning with the 1960s. In our novel empirical approach, we focus on data averaged over whole decades in order to identify the long-term determinants of inflation and the role of monetary commitment and credibility irrespective of short-term shocks. The remainder of this paper is organized as follows. In Section 2, we present a discussion of different institutional aspects of monetary policy. Section 3 is dedicated to credibility of monetary policy rules. We derive hypotheses on the effects of monetary policy commitment and monetary policy credibility on inflation performance. In Section 4, the variables and data are introduced. The empirical assessment of the hypotheses for two samples of OECD countries over five decades is presented and discussed in Section 5. In Section 6, we draw policy conclusions from our results.

This paper aims broadening the understanding of the link between de jure measures of monetary commitment and the inflation performance. For this purpose, we define a proxy variable capturing monetary credibility based on the notion that monetary policy is part of a principal–agent problem. We formulate two hypotheses: first, in OECD countries inflation is negatively correlated with the degree of monetary commitment, and second, inflation is negatively correlated with the degree of monetary credibility, defined as an interaction between an indicator of institutional constraints and an indicator of monetary commitment. In order to test these hypotheses, we analyze the long-term determinants of monetary policy by estimating variants of a fixed effects panel model based on data of 22 OECD countries since the 1960s. Both hypotheses are confirmed by our panel regressions. Our proposed proxy variable seems to be an adequate way of empirically capturing monetary credibility and its additional effect on top of monetary commitment alone, which by itself is not necessarily credible. The results of our theoretical arguments and our empirical analysis help understand how monetary commitment can be made credible within the economic policy assignment. An obvious conclusion is that monetary commitment is important for the success of monetary policy. This has already been shown in theoretical literature and partly in previous empirical literature. However, our main contribution reveals that commitment is at best a necessary condition. The sufficient condition seems to be an appropriate framework enforcing actual policy commitment by making it costly to deviate from it. However, this mechanism cannot be modeled explicitly in empirical analyses. In order to be able to incorporate this enforcement mechanism in our analysis, we define our proxy variable based on institutional constraints. A higher degree of economic freedom for citizens leads to less incentives for politicians to weaken stability oriented monetary policy since in the long run, the credibility of policy rules has an impact on the behavior of the public with respect to contracts. If monetary policy transmission is particularly driven by monetary policy expectations of forward-looking economic agents (Kwapil & Scharler, 2013), this becomes even more important. These results suggest that the public very well perceives the credibility of policy rules by relating the degree of monetary commitment with other policy areas. This relation can be used as a concept to assess the credibility of monetary policy announcements and rules ex-ante.