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ASSESSING EUROPEAN CENTRAL BANK'S CREDIBILITY DURING THE FIRST YEARS OF THE EUROSYSTEM: A BAYESIAN EMPIRICAL INVESTIGATION
Author(s) -
AMISANO GIANNI,
TRONZANO MARCO
Publication year - 2010
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2010.02203.x
Subject(s) - credibility , economics , inflation (cosmology) , reputation , central bank , monetary policy , bayesian probability , monetary economics , econometrics , deflation , bayesian vector autoregression , inflation targeting , empirical evidence , macroeconomics , computer science , political science , philosophy , physics , epistemology , theoretical physics , law , artificial intelligence
In this paper we extend Svenssons ( CEPR Discussion Paper 940 , April 1994) ‘simplest test’ of inflation target credibility inside a Bayesian econometric framework and obtain various estimates of the European Central Bank's monetary policy credibility. Overall, our empirical evidence suggests that the strategy followed by the European Central Bank was successful in building a satisfactory degree of reputation. However, we find some significant credibility reversals concerning both anti‐inflationary and anti‐deflationary credibility. These reversals, in turn, are closely related to the evolution of the cyclical macroeconomic conditions in the euro area.