Central bank credibility in CEE countries: Measurement and determinants

Abstract

We use three different indicators based on inflation expectations to measure central bank credibility in 9 countries in Central and Eastern Europe. We quantify credibility using differences between official inflation targets and inflation expectations as well as differences between inflation expectations and implicit targets based on estimation of the Taylor rule. Determinants of central bank credibility are investigated using pooled OLS. According to our results, stable and low inflation and sound public finances are conductive to central bank credibility. We show that our results are in line with survey-based measures of trust in local currency.