Is Increased Credibility Stabilizing?

John McCallum

Journal of Money, Credit and Banking, 1988, vol. 20, issue 2, 155-66

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.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:20:y:1988:i:2:p:155-66

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