Credibility of Policies Versus Credibility of Policymakers

Allan Drazen and Paul Masson

The Quarterly Journal of Economics, 1994, vol. 109, issue 3, 735-754

Abstract: Standard models of policy credibility, defined as the expectation that an announced policy will be carried out, emphasize the preferences of the policymaker and the role of tough policies in signaling toughness and raising credibility. Whether a policy is carried out, however, will also reflect the state of the economy. We present a model in which a policymaker maintains a fixed parity in good times, but devalues if the unemplo3nnent rate gets too high. Our main conclusion is that if there is persistence in unemplo3n3ient, observing a tough policy in a given period may lower rather than raise the credibility of a no-devaluation pledge in subsequent periods. We test this implication on EMS interest rates and find support for our hypothesis.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (199)

Downloads: (external link)
http://hdl.handle.net/10.2307/2118420 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Credibility of Policies Versus Credibility of Policymakers (1994)
Working Paper: Credibility of Policies versus Credibility of Policymakers (1993)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:109:y:1994:i:3:p:735-754.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().