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Assessing ECB?s Credibility During the First Years of the Eurosystem: A Bayesian Empirical Investigation

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  • Gianni Amisano
  • Marco Tronzano

Abstract

This paper extends Svensson (1994) ?simplest test?of in?ation target credibility inside a Bayesian econometric framework. We apply this approach to the initial years of the Eurosystem and obtain various estimates of ECB?s monetary policy credibility. Overall, our empirical evidence is robust to alternative prior assumptions, and suggests that the strategy followed by the ECB was successful in building a satisfactory degree of reputation. However, we find some significant credibility reversals concerning both anti-inflationary and anti-deflationary credibility. These reversals, in turn, are closely related to the evolution of the cyclical macroeconomic conditions in the Euro area.

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Bibliographic Info

Paper provided by University of Brescia, Department of Economics in its series Working Papers with number ubs0512.

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Date of creation: 2005
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Handle: RePEc:ubs:wpaper:ubs0512

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  1. Lars E.O. Svensson, 2000. "How Should Monetary Policy be Conducted in an Era of Price Stability?," NBER Working Papers 7516, National Bureau of Economic Research, Inc.
  2. De Grauwe, Paul, 1996. "Inflation Targeting to Achieve Inflation Convergence in the Transition Towards EMU," CEPR Discussion Papers 1457, C.E.P.R. Discussion Papers.
  3. Lars E.O. Svensson, 2002. "Monetary Policy and Real Stabilization," Working Papers 119, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416 National Bureau of Economic Research, Inc.
  5. Bankim Chadha & Paul R. Masson & Guy Meredith, 1992. "Models of Inflation and the Costs of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 395-431, June.
  6. Lars E.O. Svensson, 1990. "The Simplest Test of Target Zone Credibility," NBER Working Papers 3394, National Bureau of Economic Research, Inc.
  7. Lars E.O. Svensson, 1993. "The Simplest Test of Inflation Target Credibility," NBER Working Papers 4604, National Bureau of Economic Research, Inc.
  8. Svensson, Lars E O, 2000. "The First Year Of The Eurosystem: Inflation Targeting Or Not?," CEPR Discussion Papers 2380, C.E.P.R. Discussion Papers.
  9. Corbo, Vittorio & Landerretche, Oscar & Schmidt-Hebbel, Klaus, 2001. "Assessing Inflation Targeting after a Decade of World Experience," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 343-68, October.
  10. John M. Roberts, 1994. "Is inflation sticky?," Working Paper Series / Economic Activity Section 152, Board of Governors of the Federal Reserve System (U.S.).
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  13. Svensson, Lars, 1999. "Monetary Policy Issues for the Eurosystem," Seminar Papers 667, Stockholm University, Institute for International Economic Studies.
  14. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  15. Tronzano , Marco, 2005. "Inflation Targeting and Credibility: A Note on the Recent Empirical Literature," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 58(4), pages 489-506.
  16. Giancarlo Corsetti & Paolo Pesenti, 1999. "Stability, Asymmetry, and Discontinuity: The Launch of European Monetary Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 295-372.
  17. Stephen G. Cecchetti & Mark A. Wynne, 2003. "Inflation measurement and the ECB's pursuit of price stability: a first assessment," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 395-434, October.
  18. Tronzano, Marco & Psaradakis, Zacharias & Sola, Martin, 2000. "Assessing the Credibility of a Target Zone: Evidence from EMS Countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(2), pages 107-20, April.
  19. Hans-Werner Sinn & Michael Reutter, 2001. "The Minimum Inflation Rate for Euroland," NBER Working Papers 8085, National Bureau of Economic Research, Inc.
  20. Vittorio Corbo & Oscar Landerretche & Klaus Schmidt-Hebbel, 2001. "Assessing Inflation Targeting after a Decade of World Experience," Working Papers 51, Oesterreichische Nationalbank (Austrian Central Bank).
  21. Rodriguez-Palenzuela, Diego & Castelnuovo, Efrem & Nicoletti-Altimari, Sergio, 2003. "Definition of price stability, range and point inflation targets: the anchoring of long-term inflation expectations," Working Paper Series 0273, European Central Bank.
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Cited by:
  1. Laurence Fung & Ip-wing Yu, 2007. "Assessing the Credibility of The Convertibility Zone of The Hong Kong Dollar," Working Papers 0719, Hong Kong Monetary Authority.

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