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Conquering Credibility for Monetary Policy under Sticky Confidence

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  • Silveira, Jaylson Jair da
  • Lima, Gilberto Tadeu

Abstract

We derive a best-reply monetary policy when the confidence by price setters on the monetary authority’s commitment to price level targeting is both incomplete and sticky. We find that complete confidence (or full credibility) is not a necessary condition for reaching a price level target. In fact, it is the reaching of a price level target for long enough that rather ensures the conquering of the greatest possible confidence. Evidently, this result has relevant implications for the conduct of monetary policy in pursuit of price stability.

Suggested Citation

  • Silveira, Jaylson Jair da & Lima, Gilberto Tadeu, 2015. "Conquering Credibility for Monetary Policy under Sticky Confidence," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 69(2), June.
    • Handle: RePEc:fgv:epgrbe:v:69:y:2015:i:2:a:21107
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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