We would like to thank an anonymous referee for providing us with very detailed and useful comments. We also thank Kyongwook Choi, Kevin Grier, Farrokh Nourzad, and seminar participants at the 2005 Public Choice meetings.
Political Regimes and the Cost of Disinflation
Version of Record online: 20 SEP 2008
© 2008 The Ohio State University
Journal of Money, Credit and Banking
Volume 40, Issue 7, pages 1541–1554, October 2008
How to Cite
CAPORALE, B. and CAPORALE, T. (2008), Political Regimes and the Cost of Disinflation. Journal of Money, Credit and Banking, 40: 1541–1554. doi: 10.1111/j.1538-4616.2008.00172.x
- Issue online: 20 SEP 2008
- Version of Record online: 20 SEP 2008
- Received June 26, 2006; and accepted in revised form August 28, 2007.
- sacrifice ratio;
- monetary regimes
This study investigates, using data from 1960 to 1998, whether the nature of political regimes can help explain cross-national and intertemporal variations in the cost of disinflationary policies, as measured by the sacrifice ratio. We show that, ceteris paribus, right-wing governments have lower costs of disinflations than left-wing governments. We argue this is due to a superior credibility, resulting from their stronger anti-inflation reputations. In addition (and in marked contrast to previous studies), we find that when we control for political regimes, trade openness, and other standard factors in this literature, central bank independence has no significant effect on the sacrifice ratio.