Checks and balances, private information, and the credibility of monetary commitments

Philip Keefer, David Stasavage

Research output: Contribution to journalReview article

Abstract

In this article, we argue that the effectiveness of central bank independence and exchange-rate pegs in solving credibility problems is contingent on two factors: political institutions and information asymmetries. However, the impact of these two factors differs. We argue that the presence of one institution-multiple political veto players-should be crucial for the effectiveness of central bank independence, but should have no impact on the efficacy of exchange-rate pegs. In contrast, exchange-rate pegs should have a greater anti-inflationary impact when it is difficult for the public to distinguish between inflation generated by policy choice and inflation resulting from exogenous shucks to the economy. Such information asymmetries between the public and the government, however, do not increase the efficacy of central bank independence. Empirical tests using newly developed data on political institutions provide strong support for our hypotheses.

Original languageEnglish (US)
JournalInternational Organization
Volume56
Issue number4
DOIs
StatePublished - Sep 2002

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central bank
credibility
commitment
political institution
asymmetry
inflation
rate of exchange
economy
Private information
Exchange rates
Checks and balances
Central bank independence
Credibility
Information asymmetry
Efficacy
Factors
Inflation
Political institutions

ASJC Scopus subject areas

  • Organizational Behavior and Human Resource Management
  • Sociology and Political Science
  • Political Science and International Relations

Cite this

Checks and balances, private information, and the credibility of monetary commitments. / Keefer, Philip; Stasavage, David.

In: International Organization, Vol. 56, No. 4, 09.2002.

Research output: Contribution to journalReview article

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