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Central Bank Behaviour before and after the Great Recession

Published in Economics (Volume 2, Issue 5)
Received: 8 November 2013     Published: 20 November 2013
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Abstract

Before the Global Financial Crisis (GFC) central bank independence was a popular topic among those who favoured price stability. A conservative central banker, without being influenced by the economic policies of the government, can maintain as its primary priority the maintenance of price stability. The response of central bankers to the GFC seems to indicate a very different approach to macroeconomic targeting. In this paper we present empirical results using the Engel Granger cointegration technique for five countries and the results show that persistent cointegration of series from 2000 until 2006-2007 did not continue in the latter part of the sample period. These results are indicative of significant changes in central bank behaviour.

Published in Economics (Volume 2, Issue 5)
DOI 10.11648/j.eco.20130205.12
Page(s) 55-61
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

Central Banking, Financial Crises, Inflation Targeting

References
[1] Alesina, A. and Summers, L., (1993), "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence", Journal of Money Credit and Banking, Vol. 25, pp. 151-162.
[2] Blanchard, O., G. Dell’Ariccia and P. Mauro. (2010), "Rethinking Macroeconomic Policy", International Monetary Fund SPN/10/03 pp.1-18.
[3] Bleaney, M. (1996), "Central Bank Independence, Wage Bargaining Structure and Economic Performance in OECD Countries", Oxford Economic Papers, 48,1, pp. 20-38.
[4] Bosede, ND. (2004), "Inflation Targeting Framework for Jamaica: An Empirical Exploration", Research Discussion Paper, Bank of Jamaica, July.
[5] Bernanke, B. and Mishkin, F. (1997) ‘Inflation Targeting: A New Framework for Monetary Policy’, Journal of Economic Perspectives, Spring, 11, 2, pp. 97-116.
[6] Cukierman, A. (1992), "Central Bank strategy, Credibility and Independence", MIT Press, Cambridge, MA.
[7] Debelle, G. and Fischer, S. (1995), "How Independent Should a Central Bank Be?" in Fuhrer, Jeffrey ed., Goals, Guidelines and Constrains Facing Monetary Policymakers, Federal Reserve Bank of Boston, pp. 195-221.
[8] Diamond, D. Ragharam, R. (2009). "Credit Crises: Conjecture About Causes and Remedies", NBER Working Papers, No 14739.
[9] Engle, R. F. and Granger, C. W. J. (1987), "Cointegration and Error Correction: Representation, Estimation and Testing", Econometrica, 55, pp. 251-276.
[10] Friedman, M. (1968), ‘The Role of Monetary Policy’, American Economic Review, March 58: 1, pp. 1-17.
[11] Greenspan, A. (2010), "The Crises", Brooking Institution, (forthcoming)
[12] Grilli, V., Masciandaro, D. And Tabellini, G. (1991), "Political and Monetary Institution and Public Financial Policies in the Industrial Countries", Economic Policy, 13, pp. 341-392.
[13] Lohman, S. (1992), "Optimal Commitment to Monetary Policy: Flexibility versus Credibility", American Economic Review, 82,1, pp.273 -286.
[14] Kydland, F. and Prescott, E. (1977), "Rules Rather than Discretion: The Inconsistency of Optimal Plans", Journal of Political Economy, 85, June, pp. 473-491.
[15] McCullum, B. (1996), "Inflation Targeting in Canada, New Zealand, Sweden, The United Kingdom and in General", NBER working Paper 5579.
[16] Mishkin, F. and Posen, A. (1997), "Inflation Targeting: Lessons from Four countries", Economic Policy Review, Federal Reserve Bank of New York, Vol. 3, No. 3, August.
[17] Mogano, G. (1998), "Measuring Central Bank Independence: a Tale of Subjectivity and its Consequences", Oxford Economic Papers, 50, 3, pp. 468 – 492.
[18] Paulson, H. (2009), Financial Time, January 1.
[19] Phelps, E. (1968), ‘Money wage Dynamics and Labour Market Equilibrium’, Journal of Political Economy’, July/August, 76: 4, pp. 678-711.
[20] Posen, A. (1995), "Declaration Are Not Enough: Financial Sector sources of Central Bank Independence", NBER Macroeconomic Annual, pp. 253-274.
[21] Rogoff, K. (1985), "The Optimal Degree of Commitment to an Intermediate Monetary Target", Quarterly Journal of Economics 100, November, pp. 1169 – 89.
[22] Romer, C. (2009), "Back from the Brink", Paper Presented at the Federal Reserve Bank of Chicago conference on International Financial Crises, Have the Rules of Financed changed?, September 24-25.
[23] Roubini, N. and Mihm, S. (2011), Crisis Economics. New York: Penguin.
[24] Svensson, L. (1999), "Inflation Targeting as a Monetary Policy Rule", Journal of Monetary Economics 43, pp. 607 – 654.
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  • APA Style

    Mehdi Monadjemi, Kyung H. Yoon, John Lodewijks. (2013). Central Bank Behaviour before and after the Great Recession. Economics, 2(5), 55-61. https://doi.org/10.11648/j.eco.20130205.12

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    ACS Style

    Mehdi Monadjemi; Kyung H. Yoon; John Lodewijks. Central Bank Behaviour before and after the Great Recession. Economics. 2013, 2(5), 55-61. doi: 10.11648/j.eco.20130205.12

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    AMA Style

    Mehdi Monadjemi, Kyung H. Yoon, John Lodewijks. Central Bank Behaviour before and after the Great Recession. Economics. 2013;2(5):55-61. doi: 10.11648/j.eco.20130205.12

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  • @article{10.11648/j.eco.20130205.12,
      author = {Mehdi Monadjemi and Kyung H. Yoon and John Lodewijks},
      title = {Central Bank Behaviour before and after the Great Recession},
      journal = {Economics},
      volume = {2},
      number = {5},
      pages = {55-61},
      doi = {10.11648/j.eco.20130205.12},
      url = {https://doi.org/10.11648/j.eco.20130205.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20130205.12},
      abstract = {Before the Global Financial Crisis (GFC) central bank independence was a popular topic among those who favoured price stability.  A conservative central banker, without being influenced by the economic policies of the government, can maintain as its primary priority the maintenance of price stability.  The response of central bankers to the GFC seems to indicate a very different approach to macroeconomic targeting. In this paper we present empirical results using the Engel Granger cointegration technique for five countries and the results show that persistent cointegration of series from 2000 until 2006-2007 did not continue in the latter part of the sample period. These results are indicative of significant changes in central bank behaviour.},
     year = {2013}
    }
    

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    T1  - Central Bank Behaviour before and after the Great Recession
    AU  - Mehdi Monadjemi
    AU  - Kyung H. Yoon
    AU  - John Lodewijks
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    N1  - https://doi.org/10.11648/j.eco.20130205.12
    DO  - 10.11648/j.eco.20130205.12
    T2  - Economics
    JF  - Economics
    JO  - Economics
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    EP  - 61
    PB  - Science Publishing Group
    SN  - 2376-6603
    UR  - https://doi.org/10.11648/j.eco.20130205.12
    AB  - Before the Global Financial Crisis (GFC) central bank independence was a popular topic among those who favoured price stability.  A conservative central banker, without being influenced by the economic policies of the government, can maintain as its primary priority the maintenance of price stability.  The response of central bankers to the GFC seems to indicate a very different approach to macroeconomic targeting. In this paper we present empirical results using the Engel Granger cointegration technique for five countries and the results show that persistent cointegration of series from 2000 until 2006-2007 did not continue in the latter part of the sample period. These results are indicative of significant changes in central bank behaviour.
    VL  - 2
    IS  - 5
    ER  - 

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Author Information
  • School of Economics, University of New South Wales, Australia

  • Economics and Finance, University of Western Sydney, Australia

  • Economics and Finance, University of Western Sydney, Australia

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