Document Type

Thesis - Open Access

Award Date


Degree Name

Master of Science (MS)

Department / School


First Advisor

Joseph Santos


announcement, central bank credibility, commodity prices, foreign exchange prices, inflation shocks, inflation-targeting


In the early 1990s, the Bank of Canada explicitly adopted the inflation-targeting framework for monetary policy, while the Federal Reserve did not; instead, the Fed settled on an implicit inflation-targeting framework. In this study, I test whether the Bank of Canada and the Federal Reserve earned credibility for their respective commitments— explicit or otherwise—to maintain low and stable inflation. I model how credibility shapes the responses of asset prices to inflation shocks. And, for each country, I estimate responses of commodity and foreign exchange prices to announcements of inflation shocks during the periods of 1982 to 1991 (pre-inflation targeting period) and 1996 to 2005 (inflation-targeting period). I conclude that for Canada in the period 1996 to 2005, but not before, the Bank of Canada’s commitment to maintain low and stable inflation was credible. For the US, the credibility of the Federal Reserve seems to have grown as well, though to a lesser extent relative to the Bank of Canada. Taken together, my results indicate that the Bank of Canada in the period1996 to 2005 is most credible, both relative to its own past and to the Federal Reserve.

Library of Congress Subject Headings

Bank of Canada.
Board of Governors of the Federal Reserve System (U.S.)
Banks and banking, Central.
Inflation targeting -- Canada.
Inflation targeting -- United States.
Monetary policy -- Canada.
Monetary policy -- United States.


Includes bibliographical references (pages 59-60)



Number of Pages



South Dakota State University

Included in

Economics Commons



Rights Statement

In Copyright