Which of the following policies is likely to enhance a central bank's credibility?

Question

Quizplus · Accepted Answer

Announcing inflation targets is likely to enhance a central bank's credibility because it provides a clear and transparent framework for the central bank's monetary policy decisions. By setting targets for inflation, the central bank shows its commitment to controlling inflation and can be held accountable for achieving its goals. This can help to build trust with the public, financial markets, and policymakers.

B is incorrect because appointing inflation doves as central bankers implies that the central bank is likely to pursue a more expansionary monetary policy, which can be seen as undermining the central bank's commitment to price stability.

C is incorrect because making the central bank obligated to finance the national deficit could compromise the central bank's independence and lead to perceptions of fiscal dominance, which can erode its credibility.

D is incorrect because appointing central bankers for short terms that coincide with those in the legislative and executive branches of government can create instability and uncertainty with respect to the central bank's policy goals and implementation, which can weaken its credibility.

Which of the Following Policies Is Likely to Enhance a Central