Abstract
Adopting a single instead of multiple targets can be an effective way to overcome the classic time-inconsistency problem. The choice of a single mandate depends on the trade openness and the credibility. Reduced-form empirical results show as central banks become less credible, they are more likely to adopt a pegged exchange rate, and the tendency to peg depends on trade openness. In a model with “loose commitment,” as credibility falls, either an inflation target or a pegged exchange rate is more likely to be adopted. A relatively closed (highly open) economy would adopt an inflation target (exchange rate peg).
Original language | English |
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Pages (from-to) | 1369-1399 |
Number of pages | 31 |
Journal | Journal of Money, Credit and Banking |
Volume | 50 |
Issue number | 7 |
DOIs | |
Publication status | Published - Oct 2018 |