NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Central Bank Credibility, Reputation and Inflation Targeting in Historical Perspective

Michael Bordo, Pierre Siklos

NBER Working Paper No. 20693
Issued in November 2014
NBER Program(s):Development of the American Economy, Monetary Economics

This paper examines the historical evolution of central bank credibility using both historical narrative and empirics for a group of 16 countries, both advanced and emerging. It shows how the evolution of credibility has gone through a pendulum where credibility was high under the classical gold standard before 1914 before being lost and not fully regained until the 1980s. This characterization does not, however, seem to apply to the monetary history in the emerging markets examined in the paper. Nevertheless, credibility in all the economies examined has been enhanced in recent decades thanks to the adoption of inflation targeting. However, the recent financial crisis and the call for central banks to focus more on financial stability relying on macro prudential regulation may pose significant challenges for central bank credibility.

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Document Object Identifier (DOI): 10.3386/w20693

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