Credibility Without Rules

Abstract

of the External Relations Department edited the manuscript for publication and coordinated production. The views expressed in the paper, as well as any errors, are the sole responsibility of the authors and should not be construed to be those of the Executive Directors of the IMF or any other members of the IMF or the Banca d'ltalia staff. vii

The political economy of 'policy credibility': the new-classical macroeconomics and the remaking of emerging economies

“…In efforts to make credible their commitment to prevent the spread of the Asian crisis to their economies, the monetary authorities of Hong Kong and Singapore announced that they would be prepared to let interest rates rise to any level necessary to reverse flight from their countries. (Cottarelli and Giannini 1997). As a monitor and an enforcer of reform programs, the IMF acts as a kind of 'agency of restraint' that minimizes "investors' risk of policy reversal and therefore helps to establish the credibility of the chosen policy options vis-à-vis market participants" (Dhonte 1997, 6-7 Grabel (1999) treats the crisis of 1997-8.…”

“…There are numerous surveys of the policy credibility literature, e.g., Alesina and Tabellini (1988), Blackburn and Christensen (1989), Cottarelli andGiannini (1997), andPersson (1988). matter.…”

“…More generally, IMF-WB financial and technical support and SAPs play a pivotal role in maintaining investor confidence in the credibility of neoliberal reforms (Cottarelli and Giannini 1997). For example, IMF-WB supervision of the Mexican economy's neoliberal reform following its 1994-5 crisis was critical to the renewed confidence of foreign investors in the economy.…”

A New Taxonomy of Monetary Regimes

“…Moreover, this paper systematically classifies countries into the taxonomy regimes. Cottarelli and Giannini (1997) classify 100 countries into monetary regimes for 1970-94, but their taxonomy is qualitatively different from the one used here. In addition, this paper seems to be the first to empirically analyze the choice of monetary regime.…”

“…Several papers stress that consideration of all the elements of the monetary regime is needed to address real-life policy choices (Mishkin, 1999;Mishkin and Savastano, 2002;Berg, Borensztein, and Mauro, 2002;Cottarelli and Giannini, 1997). Mishkin (1999) discusses monetary policy frameworks in terms of (i) exchange rate targeting (including currency boards), (ii) monetary targeting, (iii) inflation targeting, and (iv) an implicit nominal anchor.…”