Central Bank Credibility: An Historical and Quantitative Exploration / Michael D. Bordo, Pierre L. Siklos.

Format:

Book

Author/Creator:

Bordo, Michael D.

Contributor:

National Bureau of Economic Research.

Siklos, Pierre L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20824.

NBER working paper series no. w20824

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Central Bank Credibility

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

In this paper we provide empirical measures of central bank credibility and augment these with historical narratives from eleven countries. To the extent we are able to apply reliable institutional information we can also indirectly assess their role in influencing the credibility of the monetary authority. We focus on measures of inflation expectations, the mean reversion properties of inflation, and indicators of exchange rate risk. In addition we place some emphasis on whether credibility is particularly vulnerable during financial crises, whether its evolution is a function of the type of crisis or its kind (i.e., currency, banking, sovereign debt crises). We find credibility changes over time are frequent and can be significant. Nevertheless, no robust empirical connection between the size of an economic shock (e.g., the Great Depression) and loss of credibility is found. Second, the frequency with which the world economy experiences economic and financial crises, institutional factors (i.e., the quality of governance) plays an important role in preventing a loss of credibility. Third, credibility shocks are dependent on the type of monetary policy regime in place. Finally, credibility is most affected by whether the shock can be associated with policy errors.

Notes:

Print version record

January 2015.