Central Bank Features and Recession Severity: Evidence from 2008
Social Sciences
ECON - Individual Tutoring
Theoretically, central banks that are more independent and transparent, and thereby presumably more credible, can better influence the expectations and future outlook of economic agents than those that are not. By influencing future expected inflation and interest rates, this channel of monetary policy would impact real economic activity in the short-term. This virtue, applied to recessions, would imply that countries with more credible, transparent, and/or independent central banks are better able to lift their economy from recession than those without said features. Using evidence from the 2008 recession, this paper investigates whether there was a relationship between credibility/transparency/independence and recession severity. In 2008, Transparency had a negative relationship with both inflation change and GDP change, while independence had no relationship with GDP change, and a weakly positive relationship with inflation change.
