ABSTRACT
The credibility hypothesis has become the received wisdom in political science as well as economics. Its influence has been particularly strong on a small but growing body of literature that attempts to explain the recent trend towards central bank reform in developing countries. Chile is a good example of a transition to democracy in which central bank reform occurred. Because of the central bank's pivotal role in ensuring—or imposing—the basic pillars of Chile's much-touted economic model, it is a particularly worthy candidate through which to trace the course of the authoritarians' institutional legacy. The magnitude and proximity of the democratic threat perceived by Chile's outgoing authoritarian regime were reflected in the institution that it created. By formal measures the Chilean central bank is widely considered to be one of the most autonomous in the developing world. Governments in Chile's incipient democracy have thus been forced to live with this essentially coercive economic institution.
