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Central Bank Credibility before and after the Crisis

Michael D. Bordo () and Pierre Siklos ()
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Michael D. Bordo: Rutgers University

Open Economies Review, 2017, vol. 28, issue 1, No 2, 19-45

Abstract: Abstract A new measure of credibility is constructed as a function of the differential between observed inflation and some estimate of the inflation rate that the central bank targets. The target is assumed to be met flexibly. Credibility is calculated for a large group of both advanced and emerging countries from 1980 to 2014. Financial crises reduce central bank credibility and central banks with strong institutional feaures tend to do better when hit by a shock of the magnitude of the 2007-2008 financial crisis. The VIX, adopting an inflation target and central bank transparency, are the most reliable determinants of credibility. Similarly, real economic growth has a significant influence on central bank credibility even in inflation targeting economies.

Keywords: Monetary policy credibility; Interest rate targeting; Money growth targeting; Non-linearity and asymmetry in monetary policy; Central banking institution (search for similar items in EconPapers)
JEL-codes: E58 E31 C31 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Central bank Credibility Before and After the Crisis (2015) Downloads
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DOI: 10.1007/s11079-016-9411-2

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