Central Bank Credibility in the Face of an Inflation Shock

Two central banks, Bank A and Bank B, both have an official inflation target of 2%. Over the past decade, Bank A's actual inflation rate has averaged 2.1% with low volatility. In contrast, Bank B's inflation rate has averaged 4% with high volatility. If both countries experience an identical, unexpected surge in global energy prices that pushes inflation upwards, which of the following outcomes is the most likely consequence of their differing historical performances?

Evaluating Central Bank Credibility

Policy Response and Central Bank Credibility