Credibility and the Effectiveness of Inflation Targeting Regimes

Andrew Peter Blake () and Peter F Westaway

The Manchester School of Economic & Social Studies, 1996, vol. 64, issue 0, pages 28-50

Abstract: The authors investigate the design of monetary policy in an inflation targeting regime. They argue that a lack of clarity in official descriptions of the operation of monetary policy in the United Kingdom undermines its credibility and effectiveness. The authors describe a model of inflation and use it to argue that policy should be defined and announced as a simple feedback rule, relating changes in interest rates to inflation and other indicators. Incomplete credibility where private sector agents learn about policy is investigated. Using a stochastic version of the model, the expected variance in inflation is found for different rules. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1996
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