Checks and Balances, Private Information, and the Credibility of Monetary Commitments
The authors develop and test several new hypotheses about the anti-inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government polici...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/02/1000495/checks-balances-private-information-credibility-monetary-commitments http://hdl.handle.net/10986/15746 |
| Summary: | The authors develop and test several new
hypotheses about the anti-inflationary effect of central
bank independence and exchange rate pegs in the context of
different institutions and different degrees of citizen
information about government policies. Theory provides
strong reason to believe that while central bank
independence will prove more effective as a commitment
mechanism in countries where multiple players in government
have veto power (checks and balances), the number of veto
players will have no effect on the credibility of exchange
rate pegs. Conversely, the authors argue that central bank
independence does not solve the problems of commitment that
arise when citizens are imperfectly informed about the
contribution of government policy to inflation. Exchange
rate pegs, however, mitigate these problems. The authors
present extensive evidence from cross-country tests using
newly developed data that provide strong support for their propositions. |
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