Credibility and Monetary Policy
AbstractThe purpose of this paper is to describe and evaluate the most important existing ideas concerning credibility of monetary policy, with special emphasis given to matters pertaining to the U.S. economy and the practices and procedures of the Fed. The main discussion begins with Fellner's hypothesis that the costs of a disinflationary episode will be smaller when the public believes that the disinflation will in fact be carried out. This hypothesis has been challenged recently by several writers; an evaluation of their evidence is attempted and some new results presented. Next, the discussion turns to positive analyses of the monetary policy-making process. Models developed by Barro and Gordon and others are examined, the object being to develop an understanding of why certain features of monetary policy tend to prevail. The main implications of this analysis are then used to consider various strategies for obtaining a type of policy behavior that might produce better macroeconomic results--less inflation with no more unemployment--than the U.S. has experienced in the recent past. Particular proposals touched upon include the adoption of a commodity-money standard, a balanced-budget amendment, a legislated monetary rule, a nominal GNP target, and the absorption of the Fed into the Treasury.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1490.
Date of creation: Nov 1984
Date of revision:
Publication status: published as McCallum, Bennett T. "Credibility and Monetary Policy." Price Stability and Public Policy, pp. 105-128. Kansas City, MO: Federal Reserve Bank of Kansas City, (1984).
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Bennett T. McCallum, 1984. "Credibility and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 105-135.
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Monetary policy target regimes: inflation, price level, nominal GDP, etc.
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-06-19 12:00:50
- 'Monetary Policy Target Regimes: Inflation, Price Level, Nominal GDP, etc.'
by Mark Thoma in Economist's View on 2014-06-21 07:55:00
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