can credibility enhance central bank flexibility ?

Achieving credibility in the conduct of monetary policy brings benefits in terms of future flexibility. Once a central bank establishes a credible reputation for carrying out its promise, inflexible rules may no longer be required. the successful track record of the German central bank in fighting inflation has convinced participants in international financial markets to believe that price stability will be the Bundesbank is dominant concern this credibility has given the bank some flexibility in responding to short-term changes such as those raised by German reunification in the early 1990s.
A case in which a central bank is lack of credibility led to economic problem is the Reserve Bank of new Zealand is announcement in 1989 of policy to reduce inflation nearly to zero by 1993.
The salary of the governor of the central bank was actually tied to the central bank is success in reducing inflation. however, the Reserve Bank of new zealand lacked credibility because of its past behavior. Although the central bank exceeded its targets in 1991 and 1992 in bringing down inflation, the early lack of credibility gave the central bank little room to react to the decline in economic activity that began in 1990. in fact, the reserve bank had to pursue a contractionary monetary policy (worsening the recession ) to convince the public of its commitment to lower inflation .