Monetary Policy Credibility and the Unemployment-Inflation Tradeoff: Some Evidence From 17 Industrial Countries

Papa N'Diaye and Douglas Laxton

No 2002/220, IMF Working Papers from International Monetary Fund

Abstract: Using data on long-term interest rates for 17 industrial countries, this paper develops some simple measures of monetary policy credibility and then tests if such measures improve the out-of-sample forecasts of conventional models of the inflation-unemployment process. The results provide some evidence in favor of the Lucas critique by showing that the short-run unemployment-inflation trade-off tends to improve in countries that are successful in providing low and stable inflation.

Keywords: WP; inflation expectation; Phillips Curve; Unemployment; Monetary Policy; Lucas Critique; unemployment gap; unemployment-inflation process; short-run unemployment-inflation trade-off; short-run unemployment inflation trade-off; Inflation; Real interest rates; Long term interest rates; Inflation targeting (search for similar items in EconPapers)
Pages: 39
Date: 2002-12-01
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Citations: View citations in EconPapers (27)

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