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Central Bank Credibility: Why Do We Care? How Do We Build It?

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  • Alan S. Blinder

Abstract

Central bank credibility plays a pivotal role in much of the modern literature on monetary policy, yet it is difficult to measure or even assess objectively. A survey of central bankers was conducted to determine their attitudes on two important issues: why credibility matters, and how credibility can be built. The central bankers' answers are compared with the responses of NBER-affiliated macro and monetary economists. The two groups agree much more than they disagree. They are particularly united in their evaluations of ways to make a central bank credible -- assigning high ratings to the central bank's track record and low ratings to theoretical ideas like precommitment and incentive-compatible contracts.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7161.

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Date of creation: Jun 1999
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Publication status: published as Blinder, A. S. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, 2000, v90(5,Dec), 1421-1431.
Handle: RePEc:nbr:nberwo:7161

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  1. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 53-84, December.
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  10. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 97-116, Spring.
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  13. Adam Posen, 1995. "Central bank independence and disinflationary credibility: a missing link?," Staff Reports, Federal Reserve Bank of New York 1, Federal Reserve Bank of New York.
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