## Credibility of Central Bank Independence Revisited

_IMF Working Papers, January 1, 1999_

## Source details

**Canonical URL:** [Credibility of Central Bank Independence Revisited](https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-of-central-bank-independence-revisited-2868)

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## Bibliographic details
- Authors: Timo T Valila
- Published: January 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841749.001

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### 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.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-of-central-bank-independence-revisited-2868_