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March 2016 issue
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Fueki, Fukunaga, Ichiue, Shirota
Gupta
Kril, Leiser, Spivak
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What Determines the Credibility of the Central Bank of Israel in the Public Eye?

by Zeev Kril, David Leiser and Avia Spivak
Ben Gurion University of the Negev

Abstract

In line with the rational expectations approach, economists emphasize transparency as a key factor for central banks’ credibility. In this paper, a psychological approach yields different results: trust in the banks’ policy is associated with the professionalism and independence of the bank and not with its transparency. It is a subtle difference: transparency is indeed a positive factor in the overall perception of the bank as trustworthy, but a statistical analysis shows that not all aspects of perception are relevant to trust in the bank’s credibility in its inflationary policy.

JEL Codes: E58.

 
Full article (PDF, 27 pages, 711 kb)