Enhancing Fed Credibility

Janet Yellen

Business Economics, 2006, vol. 41, issue 2, 7-13

Abstract: The Fed's credibility regarding control of inflation helps to anchor public expectations of price stability. This makes the Fed's actions more predictable in any given set of circumstances and thus strengthens the monetary policy transmission mechanism and shortens policy lags. The importance of the Fed's credibility can be illustrated by the consequences of its absence in the 1970s. This paper discusses the roots of the Fed's current credibility: a systematic approach to controlling inflation, transparency of its policy decisions, and timely communication of the decisions and the considerations upon which they are based. The paper also discusses areas in which there is room for further improvement. It argues that the most important future step would be to adopt specific inflation targets. Such a step would not only enhance credibility, it would help to focus policy-making itself. While there are some risks to establishing specific numerical targets, these risks can be managed and are outweighed by the benefits of explicit targets.Business Economics (2006) 41, 7–13; doi:10.2145/20060201

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.palgrave-journals.com/be/journal/v41/n2/pdf/be20069a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/be/journal/v41/n2/full/be20069a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Journal Article: Enhancing Fed credibility (2006)
Working Paper: Enhancing Fed credibility (2006)
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:pal:buseco:v:41:y:2006:i:2:p:7-13

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/11369

Access Statistics for this article

Business Economics is currently edited by Charles Steindel

More articles in Business Economics from Palgrave Macmillan, National Association for Business Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().