Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/61343 
Year of Publication: 
2012
Series/Report no.: 
DIW Discussion Papers No. 1225
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Monetary policy rules have been considered as fundamental protection against inflation. However, empirical evidence for a correlation between rules and inflation is relatively weak. In this paper, we first discuss likely causes for this weak link and present the argument that monetary commitment is not credible in itself. It can grant price stability best if it is backed by an adequate assignment of economic policy. An empirical assessment based on panel data covering five decades and 22 OECD countries confirms the crucial role of a credibly backed monetary commitment to price stability.
Subjects: 
credibility
central bank independence
price stability
monetary commitment
JEL: 
E31
E50
E52
Document Type: 
Working Paper

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