Explaining peak inflation rates prior to disinflationary policy adjustments or what got us into this mess?

Abstract

This study investigates, using annual data from 1974–2004, whether unionization rates, trade openness and central bank independence can help explain cross-national and inter-temporal variations in level of peak inflation prior to a disinflationary policy adjustment. I find that unionization is positively associated with both peak inflation rates whereas more independent central banks and trade openness are correlated with lower inflation levels. These results are robust to controlling for the high inflation decade of the 1970s and to using average (rather than peak) inflation as the explanatory variable.

Keywords:

• inflation
• unions
• central bank independence

JEL Classification:

• E5
• E6

Notes

¹ Most data was obtained by Daniels and VanHoose from http://ideas.repec.org/p/mrq/wpaper/0900.html. Data on trade union rates were obtained from http://oecd.statextracts.