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Central bank Credibility Before and After the Crisis

Michael D. Bordo, Pierre L. Siklos

NBER Working Paper No. 21710
Issued in November 2015, Revised in July 2016
NBER Program(s):Development of the American Economy, Monetary Economics

A new measure of credibility is constructed as a function of the differential between observed inflation and some estimate of the inflation rate that the central bank targets. The target is assumed to be met flexibly. Credibility is calculated for a large group of both advanced and emerging countries from 1980 to 2014. Financial crises reduce central bank credibility and central banks with strong institutional feaures tend to do better when hit by a shock of the magnitude of the 2007-2008 financial crisis. The VIX, adopting an inflation target and central bank transparency, are the most reliable determinants of credibility. Similarly, real economic growth has a significant influence on central bank credibility even in inflation targeting economies.

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Document Object Identifier (DOI): 10.3386/w21710

Published: Michael D. Bordo & Pierre L. Siklos, 2017. "Central Bank Credibility before and after the Crisis," Open Economies Review, Springer, vol. 28(1), pages 19-45, February. citation courtesy of

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