A central bank has market credibility when it is expected to stick with its policy.

Question

Quizplus · Accepted Answer

Market credibility is the perception that the central bank will adhere to its stated policies and goals. This expectation enhances market participants' trust in the central bank, which in turn strengthens the central bank's ability to affect the economy through monetary policy. Therefore, a central bank with market credibility is expected to stick with its policy.

A Central Bank Has Market Credibility When It Is Expected