"Assessing European Central Bank's Credibility During the First Years of the Eurosystem: A Bayesian Empirical Investigation"

In this paper we extend Svensson\u2019s (CEPR Discussion Paper 940, April 1994) \u201csimplest test\u201d of inflation target credibility inside a Bayesian econometric framework and obtain various estimates of the European Central Bank\u2019s monetary policy credibility. Overall, our empirical evidence suggests that the strategy followed by the European Central Bank was successful in building a satisfactory degree of reputation. However, we find some significant credibility reversals concerning both anti-inflationary and anti-deflationary credibility. These reversals, in turn, are closely related to the evolution of the cyclical macroeconomic conditions in the euro area