selected as the target index. This is particularly the case when such an index is already seen as a credible one and the governmentindex has a history of revisions. To further enhance the assessment of long term credibility of monetary policy stance, surveys of inflation expectations from different agents, businesses and organizations may need to be commissioned to agencies at arms length from the bank ( Svensson, 2001 ).
VI. C onclusion
This paper has tried to identify some common practices on governance structures in inflation targeting central banks. To a
Ms. Marcela Matamoros-Indorf, Ms. Mrinalini Sharma, Mr. Simon Townsend, and Mr. Luis Ignacio Jácome
Using a central bank legislation database, this paper documents and analyzes worldwide institutional arrangements for central bank lending to the government and identifies international practices. Key findings are: (i) in most advanced countries, central banks do not finance government expenditure; (ii) in a large number of emerging and developing countries, short-term financing is allowed in order to smooth out tax revenue fluctuations; (iii) in most countries, the terms and conditions of these loans are typically established by law, such that the amount is capped at a small proportion of annual government revenues, loans are priced at market interest rates, and their maturity falls within the same fiscal year; and (iv) in the vast majority of countries, financing other areas of the state, such as provincial governments and public enterprises, is not allowed. The paper does not address central banks' financial support during financial crises.
This paper surveys decision-making roles of governing bodies of central banks that have formally adopted inflation targeting as a monetary framework. Governance practices seek to balance institutional independence needed for monetary policy credibility with accountability required to protect democratic values. Central bank laws usually have price stability as the primary monetary policy objective but seldom require an explicit numerical inflation target. Governments are frequently involved in setting targets, but to ensure operational autonomy, legal provisions explicitly limit government influence in internal policy decision-making processes. Internal governance practices differ considerably with regard to the roles and inter-relationships between the policy, supervisory, and management boards of a central bank.