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Dealing with Time-Inconsistency: Inflation Targeting vs. Exchange Rate Targeting

Davis, J. Scott; Fujiwara, Ippei; Wang, Jiao


Abandoning an objective function with multiple targets and adopting single mandate can be an effective way for a central bank to overcome the classic time-inconsistency problem. We show that the choice of a particular single mandate depends on an economy’s level of trade openness and the credibility of the central bank. We begin with reduced form empirical results which show that as central banks become less credible they are more likely to adopt a pegged exchange rate, and crucially, the...[Show more]

CollectionsANU Research Publications
Date published: 2018-09-09
Type: Journal article
Source: Journal of Money, Credit and Banking
DOI: 10.1111/jmcb.12551


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