Independence day for the 'Old Lady': A natura experiment on the implications of central bank independence

Chadha, Jagjit S. and MacMillan, Peter and Nolan, Charles (2007) Independence day for the 'Old Lady': A natura experiment on the implications of central bank independence. Manchester School, 75 (3). pp. 311-327. ISSN 1463-6786. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1111/j.1467-9957.2007.01019.x

Abstract

Central bank independence is widely thought be a sine qua non of a credible commitment to price stability. The surprise decision by the UK government to grant operational independence to the Bank of England in 1997 affords us a natural experiment with which to gauge the impact on the yield curve from the adoption of central bank independence. We document the extent to which the decision to grant independence was ‘news’ and illustrate that the reduction in medium- and long-term nominal interest rates was some 50 basis points, which we show to be consistent with a sharp increase in policy-maker’s aversion to inflation deviations from target. We therefore suggest that central bank independence represents one of the clearest signals available to elected politicians about their preferences on the control of inflation.

Item Type: Article
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Suzanne Duffy
Date Deposited: 17 Jul 2008 09:22
Last Modified: 15 Apr 2014 12:55
Resource URI: http://kar.kent.ac.uk/id/eprint/4646 (The current URI for this page, for reference purposes)
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