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Explicit Inflation Targets , Communication , and Central Bank Independence : Friends or Foes ? ∗
| Content Provider | Semantic Scholar |
|---|---|
| Author | Hallett, Andrew Hughes Libich, Jan |
| Copyright Year | 2008 |
| Abstract | The paper studies the relationship between two recent institutional innovations in monetary policy central bank independence (CBI) and explicit inflation targeting (EIT) (the latter characterized by a high degree of transparency and accountability). Our reduced-form model unifies several approaches in the literature, and this comprehensiveness combined with simplicity offers three novel institutional findings, all of which we support empirically. First, instrument-CBI is a complement to EIT, whereas goal-CBI acts as a strategic substitute to EIT in ensuring policy credibility. Second, out of these two ‘commitment technologies’, EIT is shown to be socially superior to goal-CBI. Third and controversially, countries that first implement goal-CBI are then less likely to adopt EIT. Our analysis therefore implies that countries should follow the example of e.g. New Zealand, Canada, and the UK and legislate EIT together with instrument-CBI, but stay well clear of goal-CBI. Unfortunately, many countries have followed the opposite route, which seems to have had adverse consequences through several channels. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.janlibich.com/Libich_friends17.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
