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

Keefer, Philip and Stasavage, David (2002) Checks and balances, private information, and the credibility of monetary commitments. International Organization, 56 (4). pp. 751-774. ISSN 1531-5088

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Abstract

We argue that the effectiveness of central bank independence and of 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 shocks 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 these hypotheses.

Item Type: Article
Official URL: http://uk.cambridge.org/journals/journal_catalogue...
Additional Information: Published 2002 © Cambridge University Press. LSE has developed LSE Research Online so that users may access research output of the School. Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (http://eprints.lse.ac.uk) of the LSE Research Online website.
Library of Congress subject classification: J Political Science > JF Political institutions (General)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Jul 2006
URL: http://eprints.lse.ac.uk/185/

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