IDEAS home Printed from https://ideas.repec.org/p/ubs/wpaper/ubs0512.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Gianni Amisano & Marco Tronzano, 2005. "Assessing ECB?s Credibility During the First Years of the Eurosystem: A Bayesian Empirical Investigation," Working Papers ubs0512, University of Brescia, Department of Economics.
    • Handle: RePEc:ubs:wpaper:ubs0512
    as

    Download full text from publisher

    File URL: http://www.unibs.it/on-line/dse/Home/Inevidenza/PaperdelDipartimento/documento4599.html
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    2. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-350, August.
    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. Svensson, Lars E. O., 1999. "Monetary policy issues for the Eurosystem," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 79-136, December.
    5. Bankim Chadha & Paul R. Masson & Guy Meredith, 2019. "Models of Inflation and the Costs of Disinflation," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 3, pages 57-99, World Scientific Publishing Co. Pte. Ltd..
    6. Stephen G. Cecchetti & Mark A. Wynne, 2003. "Inflation measurement and the ECB's pursuit of price stability: a first assessment [‘Optimal monetary policy responses to relative price changes’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 395-434.
    7. 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.
    8. Lars E. O. Svensson, 2002. "Monetary policy and real stabilization," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 261-312.
    9. Castelnuovo, Efrem & Rodriguez-Palenzuela, Diego & Nicoletti Altimari, Sergio, 2003. "Definition of price stability, range and point inflation targets: the anchoring of long-term inflation expectations," Working Paper Series 273, European Central Bank.
    10. 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 343-368, October.
    11. 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.
    12. 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.
    13. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds [‘Fiscal policy events and interest rate swap spreads: some evidence from the EU’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 503-532.
    14. 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.
    15. Michael Reutter & Hans-Werner Sinn, 2000. "The Minimum Inflation Rate for Euroland," CESifo Working Paper Series 377, CESifo.
    16. 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.
    17. 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.
    18. 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 343-368, October.
    19. Lars E.O. Svensson, 1993. "The Simplest Test of Inflation Target Credibility," NBER Working Papers 4604, National Bureau of Economic Research, Inc.
    20. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    21. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Martin Cerisola & Gaston Gelos, 2009. "What drives inflation expectations in Brazil? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1215-1227.
    3. Nasir, Muhammad Ali & Duc Huynh, Toan Luu & Vo, Xuan Vinh, 2020. "Exchange rate pass-through & management of inflation expectations in a small open inflation targeting economy," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 178-188.
    4. Flávio de Freitas Val & Wagner Piazza Gaglianone & Marcelo Cabus Klotzle & Antonio Carlos Figueiredo Pinto, 2017. "Estimating the Credibility of Brazilian Monetary Policy using Forward Measures and a State-Space Model," Working Papers Series 463, Central Bank of Brazil, Research Department.
    5. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
    6. Nasir, Muhammad Ali & Huynh, Toan Luu Duc & Yarovaya, Larisa, 2020. "Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms," International Review of Financial Analysis, Elsevier, vol. 72(C).
    7. Mr. Scott Roger & Mr. Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 2005/163, International Monetary Fund.
    8. Sánchez, Marcelo, 2009. "Characterising the inflation targeting regime in South Korea," Working Paper Series 1004, European Central Bank.
    9. Dennis, Richard & Soderstrom, Ulf, 2006. "How Important Is Precommitment for Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 847-872, June.
    10. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanassios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Evidence from Aggregate European Data," Working papers 2005-06, University of Connecticut, Department of Economics.
    11. Mazumder, Sandeep, 2010. "The new Keynesian Phillips curve and the cyclicality of marginal cost," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 747-765, September.
    12. 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.
    13. Jondeau, E. & Le Bihan, H., 2001. "Testing for a Forward-Looking Phillips Curve. Additional Evidence from European and US Data," Working papers 86, Banque de France.
    14. Cem Cakmakli & Selva Demiralp, 2020. "A Dynamic Evaluation of Central Bank Credibility," Koç University-TUSIAD Economic Research Forum Working Papers 2015, Koc University-TUSIAD Economic Research Forum.
    15. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June.
    16. Jondeau, Eric & Le Bihan, Herve, 2005. "Testing for the New Keynesian Phillips Curve. Additional international evidence," Economic Modelling, Elsevier, vol. 22(3), pages 521-550, May.
    17. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
    18. de Freitas Val, Flávio & Klotzle, Marcelo Cabus & Pinto, Antonio Carlos Figueiredo & Gaglianone, Wagner Piazza, 2017. "Estimating the credibility of Brazilian monetary policy using a Kalman filter approach," Research in International Business and Finance, Elsevier, vol. 41(C), pages 37-53.
    19. Ravenna, Federico, 2005. "The European Monetary Union as a commitment device for new EU member states," Working Paper Series 516, European Central Bank.
    20. Nasir, Muhammad Ali & Balsalobre-Lorente, Daniel & Huynh, Toan Luu Duc, 2020. "Anchoring inflation expectations in the face of oil shocks & in the proximity of ZLB: A tale of two targeters," Energy Economics, Elsevier, vol. 86(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ubs:wpaper:ubs0512. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Matteo Galizzi (email available below). General contact details of provider: https://edirc.repec.org/data/febreit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.