The credibility of monetary reform – New evidence

Abstract

The history of monetary policy is characterised by crisis and reform. The paper is dedicated to an explanation of what makes monetary reforms successful. A cross-sectional econometric analysis is chosen to deal with this problem. It is based on a standard macroeconomic model of commitment and credibility. As the dependent variable, we calculate a post-reform inflation rate. The exogenous variables are the degree of legal commitment, the constraining influence of institutions and a new variable for ex-ante credibility of the reform. The paper allows for the conclusion that monetary commitment, the consideration of institutional constraints and abstinence from the money press are crucial for the success of a monetary reform. Copyright Springer Science + Business Media, Inc. 2005

Monetary Commitment, Institutional Constraints and Inflation: Empirical Evidence for OECD Countries Since the 1970s

“…He also claims that the statute of a central bank does not allow assessing the government's commitment to stability. One important conclusion of this reasoning is that CBI must not be confused with credibility (Freytag 2005).…”

Structural Reforms and the Exchange Rate Regime: A Panel Analysis for the World Versus OECD Countries

“…Monetary commitment, in turn, does not necessarily imply a fixed exchange rate, however. Hence, we check the robustness of our results using an alternative indicator of monetary policy commitment in order to make sure that our definition of monetary autonomy does not create a bias in the estimations -probably in the direction of not finding any effects (Freytag, 2005). The indicator is available for a smaller -25set of countries only, which basically coincides with the 23 high-income OECD economies.…”

“…Economic freedom -Summary indicator -Money and banking system -Government size -Regulation Exchange rate regime Reinhart and Rogoff (2002) Monetary commitment Freytag (2005) Inflation OECD ( 2002), World Bank (2002) Economic growth OECD (2002), World Bank (2002) Economic openness (trade/ GDP) OECD ( 2002), World Bank (2002) Political constraints (POLCON5) Henisz (2000Henisz ( , 2002 Number of government changes (GOVCHANGES)…”