Credibility and Monetary Policy
The 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.
|Date of creation:||Nov 1984|
|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).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grossman, Herschel I., 1983.
"The natural-rate hypothesis, the rational-expectations hypothesis, and the remarkable survival of non-market-clearing assumptions,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 19(1), pages 225-245, January.
- Herschel I. Grossman, 1982. "The Natural-Rate Hypothesis, the Rational-Expectations Hypothesis, and the Remarkable Survival of Non-Market-Clearing Assumptions," NBER Working Papers 1010, National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(3), pages 721-725, August.
- George L. Perry, 1983. "What Have We Learned about Disinflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 587-602.
- Phillip Cagan & William Fellner, 1983. "Tentative Lessons from the Recent Disinflationary Effort," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 603-610.
- Friedman, Benjamin M, 1984. "Lessons from the 1979-82 Monetary Policy Experiment," American Economic Review, American Economic Association, vol. 74(2), pages 382-387, May.
- Thomas J. Sargent, 1982.
"The Ends of Four Big Inflations,"
in: Inflation: Causes and Effects, pages 41-98
National Bureau of Economic Research, Inc.
- Stanley Fischer, 1984. "Contracts, Credibility, and Disinflation," NBER Working Papers 1339, National Bureau of Economic Research, Inc.
- Gordon, Robert J, 1984.
"Supply Shocks and Monetary Policy Revisited,"
American Economic Review,
American Economic Association, vol. 74(2), pages 38-43, May.
- Lombra, Raymond & Moran, Michael, 1980. "Policy advice and policymaking at the federal reserve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 13(1), pages 9-68, January.
- Robert E. Hall, 1982. "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 111-122 National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
- Benjamin M. Friedman, 1983. "Recent Perspectives in and on Macroeconomics," NBER Working Papers 1208, National Bureau of Economic Research, Inc.
- Canzoneri, Matthew B, 1985.
"Monetary Policy Games and the Role of Private Information,"
American Economic Review,
American Economic Association, vol. 75(5), pages 1056-1070, December.
- Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
- Robert J. Barro, 1982. "United States Inflation and the Choice of Monetary Standard," NBER Chapters, in: Inflation: Causes and Effects, pages 99-110 National Bureau of Economic Research, Inc.
- repec:nbr:nberre:0126 is not listed on IDEAS
- Robert E. Lucas, Jr., 1980. "Rules, Discretion, and the Role of the Economic Advisor," NBER Chapters, in: Rational Expectations and Economic Policy, pages 199-210 National Bureau of Economic Research, Inc.
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1490. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.