Central Bank Credibility and Monetary Policy

Kwangyong Park

International Journal of Central Banking, 2023, vol. 19, issue 2, 145-197

Abstract: In this paper, a numerical measure of central bank credibility is proposed that can be incorporated into a New Keynesian model under bounded rationality. This measure arises due to the existence of the changes in private beliefs, which are different from those of the central bank. It is shown that central bank credibility matters for macroeconomic stability. Specifically, as credibility increases, macroeconomic variables vary less since private agents’ expectations are more anchored. Through this channel, the model generates endogenous volatility changes. Finally, the credibility of the Federal Reserve and the European Central Bank are computed based on the proposed method.

JEL-codes: D8 E3 E52 E58 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Central Bank Credibility and Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:2:a:3

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