EconPapers    
Economics at your fingertips  
 

Central bank credibility and the expectations channel: evidence based on a new credibility index

Grégory Levieuge, Yannick Lucotte () and Sébastien Ringuedé
Additional contact information
Grégory Levieuge: Banque de France, DGEI-DEMFI-RECFIN (041-1391)
Sébastien Ringuedé: Univ. Orléans

Review of World Economics (Weltwirtschaftliches Archiv), 2018, vol. 154, issue 3, 493-535

Abstract: Abstract This article investigates the relationship between central bank credibility and the volatility of the key monetary policy instrument. First, we propose a time-varying measure of central bank credibility based on the gap between inflation expectations and the official inflation target. While this new index addresses the main limitations of the existing indicators, it also appears particularly suited to assess the monetary experiences of a large sample of inflation-targeting emerging countries. Second, by means of EGARCH estimations, we formally prove the existence of a negative effect of credibility on the volatility of the short-term interest rate. In line with the expectations channel of monetary policy, the higher the credibility of the central bank, the lower the need to move its instruments to effectively fulfill its objective.

Keywords: Credibility; Inflation expectations; Inflation targeting; Emerging countries; EGARCH (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s10290-018-0308-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Central bank credibility and the expectations channel: Evidence based on a new credibility index (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:weltar:v:154:y:2018:i:3:d:10.1007_s10290-018-0308-6

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10290/PS2

Access Statistics for this article

Review of World Economics (Weltwirtschaftliches Archiv) is currently edited by Paul Bergin, Holger Görg, Cédric Tille and Gerald Willmann

More articles in Review of World Economics (Weltwirtschaftliches Archiv) from Springer, Institut für Weltwirtschaft (Kiel Institute for the World Economy) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-11-11
Handle: RePEc:spr:weltar:v:154:y:2018:i:3:d:10.1007_s10290-018-0308-6