Credibility of Central Bank Independence Revisited
IMF Working Papers, January 1, 1999
Source details
- Canonical URL
- Credibility of Central Bank Independence Revisited
Other formats
Bibliographic details
- Authors: Timo T Valila
- Published: January 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841749.001
Research question and core argument
- Examines the specific role of central bank independence in determining the overall credibility of monetary policy.
- Argues that the credibility of delegating monetary policy to an independent central bank is endogenous to the credibility of the inflation target.
- Highlights that a “conservative” inflation target may not be compatible with the fiscal policy stance.
- Shows that lack of transparency in designing the institutional set-up is welfare-reducing.
Key findings
- Credibility of central bank independence is not exogenous; it depends on the credibility of the inflation target.
- A “conservative” inflation target can conflict with fiscal policy, undermining delegation credibility.
- Institutional-design opacity lowers welfare.
Policy implications and recommendations (as implied by the paper)
- Ensure consistency between inflation targets and fiscal policy stance to preserve credibility of delegated monetary policy.
- Design institutional arrangements with transparency to avoid welfare losses associated with opaque setups.
- Consider interactions between monetary delegation and fiscal credibility when evaluating central bank independence reforms.
Subject headings and keywords
- Subject: Central bank autonomy, Fiscal policy, Inflation, Inflation targeting, Public sector
- Keywords: central bank, WP
Source: IMF Working Papers landing page for "Credibility of Central Bank Independence Revisited" by Timo T Valila (January 1, 1999), Working Paper No. 1999/002.
Content in this bundle
- Credibility of Central Bank Independence Revisited - WP/99/02