Imperfect Credibility and Robust Monetary Policy

Richard Dennis

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: This paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model. Taking the Smets-Wouters model as the central bank.s approximating model, the paper's main findings are as follows. First, a central bank's credibility can have large consequences for how policy responds to shocks. Second, central banks that have low credibility can benefit from a desire for robustness because this desire motivates the central bank to follow through on policy announcements that would otherwise not be time-consistent. Third, even relatively small departures from perfect credibility can produce important declines in policy performance. Finally, as a technical contribution, the paper develops a numerical procedure to solve the decision-problem facing an imperfectly credible policymaker that seeks robustness

JEL-codes: C63 E58 E61 (search for similar items in EconPapers)
Pages: 34 Pages
Date: 2012-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://www.cbe.anu.edu.au/researchpapers/econ/wp582.pdf (application/pdf)

Related works:
Journal Article: Imperfect credibility and robust monetary policy (2014)
Working Paper: Imperfect Credibility and Robust Monetary Policy (2013)
Working Paper: Imperfect Credibility and Robust Monetary Policy (2013)
Working Paper: Imperfect Credibility and Robust Monetary Policy (2013)
Working Paper: Imperfect Credibility and Robust Monetary Policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2012-582

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