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Discuss by collecting and analyzing historical data and by giving up-to-date real life example(s) from the American, UK or Europ
Finance & Accounting
Pages 10 (2510 words)
COLLECTION AND ANALYSIS OF HISTORICAL DATA (Author’s name) (Institutional Affiliation) Key words: Inflation Bias, Central Bank Background The willingness of countries to encourage their central banks to print more money, or implement policies that results in an increasing inflation rate over a period of time is called inflation bias.
However, the inflation bias presence is a typical feature of the system of flat money where the monetary mechanisms are pursued with discretion. Inflation bias exists because of two reasons. First, with the discretionary sovereignty over the monetary policy conduct, nations can fund deficits of the budget by raising the seigniorage cash inflows over the non-inflationary amount. Seigniorage can be part of the maximum tax composition due to the marginal cost of every kind of taxes. To reduce the inflation bias, many nations have opted to give their central banks the legal independence. The paper therefore, analyses and discusses if nations with independent Central Banks also experience a lower inflation. Research Question Most governments and nations impose legal independence on their central banks. Their aim is to cushion the monetary policies from the political interference and from the pressure of electoral to deliver the economic growth at the long term inflationary cost expense. It is always assumed that the legal independence of central banks from the fiscal authority is crucial as it protects the economy from the debt monetization. Therefore, the paper will answer the question if the commitment of the credible government is deemed to have a reduced rate of inflation. ...
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