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Is Increased Credibility Stabilizing?

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  • McCallum, John

Abstract

Assuming that actual monetary policy is nonaccommodating in the face of po sitive wage or price shocks, this paper compares the case where the p ublic is aware that policy is nonaccommodating (the "credible" case ) with the case where the public believes that policy will be accommo dating (the "noncredible" case). The analysis is based on the model of J. B. Taylor (1979), extended to incorporate forward-looking cons umers. The main finding is that in the event of positive wage or pric e shocks, the credible case is likely to involve a larger immediate d rop in output than the noncredible case, followed by a faster recover y. Copyright 1988 by Ohio State University Press.

Suggested Citation

  • McCallum, John, 1988. "Is Increased Credibility Stabilizing?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 155-166, May.
    • Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:2:p:155-66
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    Cited by:

    1. Ghatak, Subrata & Spanjers, Willem, 2007. "Monetary policy rules in transition economies: the impact of ambiguity," Economics Discussion Papers 2007-2, School of Economics, Kingston University London.

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