in the context of different institutions and different degrees of citizen information about government policies. Theory … effect on the credibility of exchange rate pegs. Conversely, Keefer and Stasavage argue that central bank independence does …

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 …