Skip to Main content Skip to Navigation
Preprints, Working Papers, ...

Credibility and Monetary Policy

Abstract : This paper revisits the ability of central banks to manage private sector's expectations depending on its credibility and how this affects the use of interest rate rules and pegs to achieve monetary policy objectives. When private agents can only provide limited incentives for the central bank to follow a policy, we show that resulting limited credibility allows a central bank to prevents the inflation from diverging by defaulting on past promises if necessary. As a result, the Taylor rule, when expected, anchors inflation expectations on a unique equilibrium path as long as the Taylor principle is satisfied. Finally, we also show that limited credibility restricts the impact of long-term interest rate pegs, so as to make current conditions less dependent on future policy changes.
Document type :
Preprints, Working Papers, ...
Complete list of metadata
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Tuesday, November 30, 2021 - 4:20:40 PM
Last modification on : Friday, March 25, 2022 - 3:58:33 AM


Files produced by the author(s)




Jean Barthélemy, Eric Mengus. Credibility and Monetary Policy. 2017. ⟨hal-03457527⟩



Record views


Files downloads