While the basic model of time inconsistency, put forward by Barro and Gordon (Barro, R. J., & Gordon, D. B. (1983). Journal of Political Economy, 91, 589–610) is widely accepted now, several authors have expressed serious doubts about the empirical relevance of the model in explaining inflation. Interestingly enough, few attempts have been made so far to test for the existence of inflationary biases empirically. Theory predicts a positive correlation between a monetary authority's relative preference for the high employment goal and inflation. Using polling data from six countries as a proxy for public preferences we provide empirical evidence in favor of the Barro-Gordon-model.
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Berlemann, M. Time inconsistency of monetary policy: Empirical evidence from polls. Public Choice 125, 1–15 (2005). https://doi.org/10.1007/s11127-005-3324-8
- Empirical Evidence
- Political Economy
- Monetary Policy
- Public Finance
- Relative Preference