Monetary institutions, partisanship, and inflation targeting

Bumba Mukherjee, David Andrew Singer

Research output: Contribution to journalArticle

24 Citations (Scopus)

Abstract

Since 1989, twenty-five countries have adopted a monetary policy rule known as inflation targeting (IT), in which the central bank commits to using monetary policy solely for the purpose of meeting a publicly announced numerical inflation target within a particular time frame. In contrast, many other countries continue to conduct monetary policy without a transparent nominal anchor. The emergence of IT has been almost completely ignored by political scientists, who instead have focused exclusively on central bank independence and fixed exchange rates as strategies for maintaining price stability. We construct a simple model that demonstrates that countries are more likely to adopt IT when there is a conformity of preferences for low-inflation monetary policy between the government and the central bank. More specifically, the combination of a right-leaning government and a central bank without bank regulatory authority is likely to be associated with the adoption of IT. Results from a spatial autoregressive probit model estimated on a time-series cross-sectional data set of seventy-eight countries between 1987 and 2003 provide strong statistical support for our argument. The model controls for international diffusion from neighboring countries by accounting for spatial dependence in the dependent variable, but our results indicate that domestic interests and institutions - rather than the influence of neighboring countries - drive the adoption of IT.

Original languageEnglish (US)
Pages (from-to)323-358
Number of pages36
JournalInternational Organization
Volume62
Issue number2
DOIs
StatePublished - Apr 1 2008

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inflation
central bank
monetary policy
neighboring countries
regulatory authority
political scientist
conformity
Inflation targeting
Partisanship
time series
bank
Monetary policy
Central bank
Government

All Science Journal Classification (ASJC) codes

  • Sociology and Political Science
  • Political Science and International Relations
  • Organizational Behavior and Human Resource Management
  • Law

Cite this

Mukherjee, Bumba ; Singer, David Andrew. / Monetary institutions, partisanship, and inflation targeting. In: International Organization. 2008 ; Vol. 62, No. 2. pp. 323-358.
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Monetary institutions, partisanship, and inflation targeting. / Mukherjee, Bumba; Singer, David Andrew.

In: International Organization, Vol. 62, No. 2, 01.04.2008, p. 323-358.

Research output: Contribution to journalArticle

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