TITLE

The Effectiveness of Monetary Policy Anchors: Firm-Level Evidence

AUTHOR(S)
Broz, J. Lawrence; Plouffe, Michael
PUB. DATE
October 2010
SOURCE
International Organization;Fall2010, Vol. 64 Issue 4, p695
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Analyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence can help anchor private-sector inflation expectations. Yet there are few direct tests of this argument. We offer cross-national, microlevel evidence on the effectiveness of monetary anchors in controlling private-sector inflation concerns. Using firm-level data from eighty-one countries (approximately 10,000 firms), we find evidence that "international" anchors (exchange-rate commitments) correlate significantly with a substantial reduction in private-sector concerns about inflation while "domestic" anchors (inflation targeting and central bank independence) do not. Our conjecture is that private-sector inflation expectations are more responsive to exchange-rate anchors because they are more transparent, more constraining, and more costly than domestic anchoring arrangements.
ACCESSION #
54403717

 

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