to output. This incentive leads to higher than desired inflation. One solution to this credibility problem is to give … independence thus reduces society's credibility problem but this may be at the expense of less flexible countercyclical monetary … policy. The aim of this paper is to find the correct balance between credibility and flexibility, ie the optimal degree of …

incentive constraints on the policy making process, such as lack of credibility, political opportunism, political ideology, and …: it covers credibility issues, political business cycles, and optimal design of monetary institutions. Part II deals with … fiscal policy in a dynamic general equilibrium set up: the main topics here are credibility of tax policy, and political …