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Assessing European Central Bank'S Credibility During The First Years Of The Eurosystem: A Bayesian Empirical Investigation

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  • GIANNI AMISANO
  • MARCO TRONZANO

Abstract

In this paper we extend Svenssons (CEPR Discussion Paper 940, April 1994) 'simplest test' of inflation target credibility inside a Bayesian econometric framework and obtain various estimates of the European Central Bank's monetary policy credibility. Overall, our empirical evidence suggests that the strategy followed by the European Central Bank 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. Copyright © 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd and The University of Manchester.

Suggested Citation

  • Gianni Amisano & Marco Tronzano, 2010. "Assessing European Central Bank'S Credibility During The First Years Of The Eurosystem: A Bayesian Empirical Investigation," Manchester School, University of Manchester, vol. 78(5), pages 437-459, September.
  • Handle: RePEc:bla:manchs:v:78:y:2010:i:5:p:437-459
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    References listed on IDEAS

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    1. 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.
    2. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    3. Lars E. O. Svensson, 1991. "The Simplest Test of Target Zone Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 655-665, September.
    4. Soderlind, Paul & Svensson, Lars, 1997. "New techniques to extract market expectations from financial instruments," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 383-429, October.
    5. Lars E. O. Svensson, 1999. "How should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 195-259.
    6. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
    7. 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.
    8. 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 107-120, April.
    9. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    10. Tronzano , Marco, 2005. "Inflation Targeting and Credibility: A Note on the Recent Empirical Literature," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 58(4), pages 489-506.
    11. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
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    1. repec:eee:riibaf:v:41:y:2017:i:c:p:37-53 is not listed on IDEAS
    2. Grégory Levieuge & Yannick Lucotte & Sébastien Ringuedé, 2015. "Central bank credibility and the expectations channel: Evidence based on a new credibility index," NBP Working Papers 209, Narodowy Bank Polski, Economic Research Department.

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