First, what can be done to increase central bank credibility? Second, why is central bank credibility important?

What will be an ideal response?


Central bank credibility can be achieved by: (1 ) imposing rules on the central bank; (2 ) making the central bank independent (of political pressure); and (3 ) choosing a conservative central banker. Central bank credibility is important to minimize the chances of occurrence of the time inconsistency problem. Also, whenever a central bank implements a disinflationary policy, the output effects will be smaller the more credible is the central bank.

Economics

You might also like to view...

Which of the following is a likely consequence of a fall in private investment?

A) Mortgage defaults fall. B) Asset prices rise. C) Labor supply falls. D) Consumption falls.

Economics

________ is defined as a sustained ________ in the price level

A) Inflation; fall B) Deflation; fall C) Deflation; rise D) Answers A and C above are both true.

Economics

If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would

A) shift the short-run Phillips curve to the right. B) not shift the short-run Phillips curve. C) shift the short-run Phillips curve to the left. D) shift the short-run Phillips curve to the left and shift the long-run Phillips curve to the right.

Economics

Which of the following actions should be discussed with an attorney before undertaking as the action could be considered legal?

A) a tying sale with a customer B) an agreement with a competitor firm to set prices C) an agreement with a competitor firm to not sell to a particular customer D) an agreement with a competitor firm to adjust output levels

Economics