Jakob de Haan

Central Bank Independence: An Update of Theory and Evidence

This paper reviews recent research on central bank independence (CBI). After we have distinguished between independence and conservativeness, the literature on optimal inflation contracts is discussed, followed by research in which the inflationary bias is endogenized. Finally, the various challenges that have been raised against previous empirical findings on CBI are reviewed. We conclude that the negative relationship between CBI and inflation is quite robust.

On the relationship between economic freedom and economic growth

Often it is maintained that economic freedom may further high levels of economic growth. This paper compares various indicators for economic freedom. It is concluded that although these measures differ somewhat in their coverage, they show similar rankings for the countries covered. Some elements in these measures are, however, questionable. The robustness of the relationship between freedom and growth is also examined. Our main conclusion is that more economic freedom fosters economic growth.

Will business cycles in the Euro Area converge: a critical survey of empirical research

This survey of business cycle synchronization in the European monetary union focuses on two issues: have business cycles become more similar, and which factors drive business cycle synchronization. We conclude that business cycles in the euro area have gone through periods of both convergence and divergence. Still, there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased. Higher trade intensity is found to lead to more synchronization, but the point estimates vary widely. The evidence for other factors affecting business cycle synchronization is very mixed.

Political and institutional determinants of fiscal policy in the European Community

In recent theoretical and empirical research the variation in political and institutional arrangements which may affect the process of national policy formation is examined, in order to explain cross-country differences with respect to fiscal policies pursued. In this paper we build upon this literature and examine whether and how cross-country differences in debt accumulation and public sector size of Member Countries of the European Community during the 1980s can be explained. We conclude that the growth of government debt is positively related to the frequency of government changes and negatively to sound budgetary procedures. In countries with left-wing governments the growth of the share of government spending in total output generally tends to be higher.

Look who's talking: ECB communication during the first years of EMU

This paper studies ECB and Bundesbank communication on monetary policy during the first years of the European Economic and Monetary Union. We study whether statements by different (groups of) central bankers have been contradictory and whether differences have diminished over time. We find that statements on the interest rate, inflation and economic growth have indeed been contradictory. Furthermore, national central banks continue to dominate communication on monetary policy. Finally, only the ECB Executive Board has observed radio silence before ECB Governing Council meetings. A positive conclusion is that, over time, interest rate statements have become less contradictory.

Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation

Abstract Recent theoretical and empirical research has examined the variation in political and institutional arrangements which may affect national policy formation, in order to explain cross-country differences in fiscal policies. In this note we investigate cross-country differences in debt accumulation and the level of government spending in the OECD countries over the period 1982–1992. Our findings are negative and suggest a reappraisal of previous research. In particular, neither the growth of government debt nor the level of government spending is related to the corrected Roubini–Sachs power dispersion index.

Does more democracy lead to greater economic freedom? New evidence for developing countries

This paper examines the relationship between economic and political freedom, focusing on developing countries. We conclude that increases in economic freedom between 1975 and 1990 are to some extent caused by the level of political freedom. This result shows up for all measures of political freedom that we employ. Our conclusion also holds for the sample without outliers. These outlying observations are identified using so-called robust estimation techniques.

Modelling government investment and economic growth on a macro level: a review

This paper reviews empirical research on the impact of government capital spending on economic growth. The pros and cons of five different ways to model the relationship between public investment and economic growth are reviewed, while some estimation results are presented for illustrative purposes. We start with the production function approach in which the public capital stock is added as an additional input factor in a production function, which is then estimated at a national or regional level. Alternatively, a cost or profit function in which the public capital stock is included could be estimated by what we call the behavioural approach. A third way to examine the relationship between government investment and economic growth is the so-called VAR approach. By imposing as few economic restrictions as possible this approach tries to solve some of the problems raised by the production and behavioural approach. The first three approaches are all based on time-series (or panel data). A fourth way to model the growth effects of public capital spending is to include government investment spending in cross- section growth regressions. Finally some attempts to estimate the growth effects of public investment spending using structural econometric models are discussed.

Does central bank independence really matter?: New evidence for developing countries using a new indicator

Abstract This paper provides a new indicator for central bank independence (CBI) based on the turnover rate of central bank governors for 82 developing countries over the period 1980–1989. Using this new indicator it is concluded that this proxy for CBI is related to inflation, only if the high inflation countries are included in the sample. The view that both CBI and inflation are caused by effective opposition towards inflation is not supported. Using both the extreme bound analysis and Sala-i-Martins method we do not find evidence that CBI is robustly related to economic growth.

Further evidence on the relationship between economic freedom and economic growth

Often it is maintained that economic freedom may further high levels of economic growth. Using various measures of economic freedom constructed by Scully and Slottje, the robustness of this relationship is examined. Both direct and indirect effects of lack of liberties are analysed. Our main conclusion is that the link between economic freedom and economic growth depends upon the measure used: for some indicators of economic freedom there appears a robust direct relationship, while for others there is no such relationship. Investment is not related to our indicators for economic freedom.