Imperfect Credibility and Robust Monetary Policy

Richard Dennis

Working Papers from Business School - Economics, University of Glasgow

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 banks approximating model, the papers main fi ndings are as follows. First, a central banks credibility can have large consequences for how policy responds to shocks. Second, central banks that have low credibility can benefi t 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.

Keywords: Imperfect Credibility; Robust Policymaking; Time-consistency. (search for similar items in EconPapers)
JEL-codes: C63 E58 E61 (search for similar items in EconPapers)
Date: 2013-08
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http://www.gla.ac.uk/media/media_292453_en.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 (2012)
Working Paper: Imperfect Credibility and Robust Monetary Policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2013_14

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