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Monetary policy credibility and inflationary expectation

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  • Yuxiang, Karl
  • Chen, Zhongchang

Abstract

Since there are significant biases in the individuals' inflationary expectations, the role of monetary policy credibility needs to be reconsidered. Theoretically, policy credibility can influence the policymaker's plan of action or reflect his preference. Thus, when prices rise, perceived credibility not only stabilizes public expectations of inflation, but also becomes important information, which can be used by the individuals to improve their expectations. The econometric analysis of a large-scale survey largely confirms these theoretical predictions. The perceived policy credibility as well as inflation perceptions and education plays an important role in the individuals' inflationary expectations.

Suggested Citation

  • Yuxiang, Karl & Chen, Zhongchang, 2010. "Monetary policy credibility and inflationary expectation," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 487-497, August.
  • Handle: RePEc:eee:joepsy:v:31:y:2010:i:4:p:487-497
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    References listed on IDEAS

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    Cited by:

    1. Yuxiang, Karl & Chen, Zhongchang, 2011. "Resource abundance and financial development: Evidence from China," Resources Policy, Elsevier, vol. 36(1), pages 72-79, March.
    2. repec:eee:jrpoli:v:53:y:2017:i:c:p:164-172 is not listed on IDEAS

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