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...

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Main Authors:	Keefer, Philip, Stasavage, David
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS COMPETITION POLICY CPI CURRENCY BOARD DECISION MAKING DEMOCRATIC INSTITUTIONS DEVALUATION DEVELOPING COUNTRIES DISCOUNT RATE DOMESTIC INFLATION DOMESTIC PRICES ECONOMIC ASSUMPTIONS ECONOMIC CIRCUMSTANCES ECONOMIC GROWTH ECONOMIC POLICIES ECONOMICS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE PEG EXOGENOUS SHOCKS EXPORTS FINANCE MINISTRY FISCAL DEFICIT FISCAL POLICIES FISCAL POLICY FIXED EXCHANGE RATE FIXED EXCHANGE RATES FORECASTS FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN INFLATION HIGH INFLATION IMPORTS INFLATION RATE INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CONTEXT INSTITUTIONAL SETTING LEGISLATION LONG TERM MACROECONOMIC POLICY MONETARY FINANCING MONETARY INSTITUTIONS MONETARY POLICIES MONETARY POLICY MONEY DEMAND MONEY MULTIPLIER MONEY SUPPLY NATIONAL INCOME NOMINAL EXCHANGE RATE NON-OECD COUNTRIES POLICY CREDIBILITY POLICY DECISIONS POLICY MAKERS POLICY OUTCOMES POLICY REFORM POLICY RESEARCH POLICY TARGETS PRICE INCREASES PRIVATE INFORMATION PRIVATE SECTOR RATE OF INFLATION REDUCING INFLATION SIGNALING STANDARD DEVIATION TERMS OF TRADE TRADEOFFS WELFARE FUNCTION CHECKS & BALANCES CENTRAL BANK ROLES EXCHANGE RATES GOVERNMENT POLICY PUBLIC INFORMATION CROSS COUNTRY ANALYSIS INFLATION RATES INFLATIONARY PRESSURES ECONOMIC SHOCKS
Online Access:	http://documents.worldbank.org/curated/en/2001/02/1000495/checks-balances-private-information-credibility-monetary-commitments http://hdl.handle.net/10986/15746

id	okr-10986-15746
recordtype	oai_dc
spelling	okr-10986-157462021-04-23T14:03:19Z Checks and Balances, Private Information, and the Credibility of Monetary Commitments Keefer, Philip Stasavage, David CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS COMPETITION POLICY CPI CURRENCY BOARD DECISION MAKING DEMOCRATIC INSTITUTIONS DEVALUATION DEVELOPING COUNTRIES DISCOUNT RATE DOMESTIC INFLATION DOMESTIC PRICES ECONOMIC ASSUMPTIONS ECONOMIC CIRCUMSTANCES ECONOMIC GROWTH ECONOMIC POLICIES ECONOMICS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE PEG EXOGENOUS SHOCKS EXPORTS FINANCE MINISTRY FISCAL DEFICIT FISCAL POLICIES FISCAL POLICY FIXED EXCHANGE RATE FIXED EXCHANGE RATES FORECASTS FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN INFLATION HIGH INFLATION IMPORTS INFLATION RATE INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CONTEXT INSTITUTIONAL SETTING LEGISLATION LONG TERM MACROECONOMIC POLICY MONETARY FINANCING MONETARY INSTITUTIONS MONETARY POLICIES MONETARY POLICY MONEY DEMAND MONEY MULTIPLIER MONEY SUPPLY NATIONAL INCOME NOMINAL EXCHANGE RATE NON-OECD COUNTRIES POLICY CREDIBILITY POLICY DECISIONS POLICY MAKERS POLICY OUTCOMES POLICY REFORM POLICY RESEARCH POLICY TARGETS PRICE INCREASES PRIVATE INFORMATION PRIVATE SECTOR RATE OF INFLATION REDUCING INFLATION SIGNALING STANDARD DEVIATION TERMS OF TRADE TRADEOFFS WELFARE FUNCTION CHECKS & BALANCES CENTRAL BANKS CENTRAL BANK ROLES EXCHANGE RATES GOVERNMENT POLICY PUBLIC INFORMATION CROSS COUNTRY ANALYSIS INFLATION RATES INFLATIONARY PRESSURES ECONOMIC SHOCKS 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. 2013-09-09T21:42:55Z 2013-09-09T21:42:55Z 2001-02 http://documents.worldbank.org/curated/en/2001/02/1000495/checks-balances-private-information-credibility-monetary-commitments http://hdl.handle.net/10986/15746 English en_US Policy Research Working Paper;No. 2542 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS COMPETITION POLICY CPI CURRENCY BOARD DECISION MAKING DEMOCRATIC INSTITUTIONS DEVALUATION DEVELOPING COUNTRIES DISCOUNT RATE DOMESTIC INFLATION DOMESTIC PRICES ECONOMIC ASSUMPTIONS ECONOMIC CIRCUMSTANCES ECONOMIC GROWTH ECONOMIC POLICIES ECONOMICS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE PEG EXOGENOUS SHOCKS EXPORTS FINANCE MINISTRY FISCAL DEFICIT FISCAL POLICIES FISCAL POLICY FIXED EXCHANGE RATE FIXED EXCHANGE RATES FORECASTS FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN INFLATION HIGH INFLATION IMPORTS INFLATION RATE INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CONTEXT INSTITUTIONAL SETTING LEGISLATION LONG TERM MACROECONOMIC POLICY MONETARY FINANCING MONETARY INSTITUTIONS MONETARY POLICIES MONETARY POLICY MONEY DEMAND MONEY MULTIPLIER MONEY SUPPLY NATIONAL INCOME NOMINAL EXCHANGE RATE NON-OECD COUNTRIES POLICY CREDIBILITY POLICY DECISIONS POLICY MAKERS POLICY OUTCOMES POLICY REFORM POLICY RESEARCH POLICY TARGETS PRICE INCREASES PRIVATE INFORMATION PRIVATE SECTOR RATE OF INFLATION REDUCING INFLATION SIGNALING STANDARD DEVIATION TERMS OF TRADE TRADEOFFS WELFARE FUNCTION CHECKS & BALANCES CENTRAL BANKS CENTRAL BANK ROLES EXCHANGE RATES GOVERNMENT POLICY PUBLIC INFORMATION CROSS COUNTRY ANALYSIS INFLATION RATES INFLATIONARY PRESSURES ECONOMIC SHOCKS
spellingShingle	CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS COMPETITION POLICY CPI CURRENCY BOARD DECISION MAKING DEMOCRATIC INSTITUTIONS DEVALUATION DEVELOPING COUNTRIES DISCOUNT RATE DOMESTIC INFLATION DOMESTIC PRICES ECONOMIC ASSUMPTIONS ECONOMIC CIRCUMSTANCES ECONOMIC GROWTH ECONOMIC POLICIES ECONOMICS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE PEG EXOGENOUS SHOCKS EXPORTS FINANCE MINISTRY FISCAL DEFICIT FISCAL POLICIES FISCAL POLICY FIXED EXCHANGE RATE FIXED EXCHANGE RATES FORECASTS FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN INFLATION HIGH INFLATION IMPORTS INFLATION RATE INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CONTEXT INSTITUTIONAL SETTING LEGISLATION LONG TERM MACROECONOMIC POLICY MONETARY FINANCING MONETARY INSTITUTIONS MONETARY POLICIES MONETARY POLICY MONEY DEMAND MONEY MULTIPLIER MONEY SUPPLY NATIONAL INCOME NOMINAL EXCHANGE RATE NON-OECD COUNTRIES POLICY CREDIBILITY POLICY DECISIONS POLICY MAKERS POLICY OUTCOMES POLICY REFORM POLICY RESEARCH POLICY TARGETS PRICE INCREASES PRIVATE INFORMATION PRIVATE SECTOR RATE OF INFLATION REDUCING INFLATION SIGNALING STANDARD DEVIATION TERMS OF TRADE TRADEOFFS WELFARE FUNCTION CHECKS & BALANCES CENTRAL BANKS CENTRAL BANK ROLES EXCHANGE RATES GOVERNMENT POLICY PUBLIC INFORMATION CROSS COUNTRY ANALYSIS INFLATION RATES INFLATIONARY PRESSURES ECONOMIC SHOCKS Keefer, Philip Stasavage, David Checks and Balances, Private Information, and the Credibility of Monetary Commitments
relation	Policy Research Working Paper;No. 2542
description	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.
format	Publications & Research :: Policy Research Working Paper
author	Keefer, Philip Stasavage, David
author_facet	Keefer, Philip Stasavage, David
author_sort	Keefer, Philip
title	Checks and Balances, Private Information, and the Credibility of Monetary Commitments
title_short	Checks and Balances, Private Information, and the Credibility of Monetary Commitments
title_full	Checks and Balances, Private Information, and the Credibility of Monetary Commitments
title_fullStr	Checks and Balances, Private Information, and the Credibility of Monetary Commitments
title_full_unstemmed	Checks and Balances, Private Information, and the Credibility of Monetary Commitments
title_sort	checks and balances, private information, and the credibility of monetary commitments
publisher	World Bank, Washington, DC
publishDate	2013
url	http://documents.worldbank.org/curated/en/2001/02/1000495/checks-balances-private-information-credibility-monetary-commitments http://hdl.handle.net/10986/15746
_version_	1764429613654605824

Checks and Balances, Private Information, and the Credibility of Monetary Commitments

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