Expectations, and Credibility in a Model of Monetary Policy

John Stiver ()

No 2003-34, Working papers from University of Connecticut, Department of Economics

Abstract: Recent monetary history has been characterized by monetary authorities which have been, alternatively hard and soft on inflation. In a vintage capital framework, investment decisions are not easily reversed. Therefore, expectations of policy as well as current policy are important to the investment decision. Here, a vintage capital model is used to assess the value of central bank credibility for a policy change. Policy in this model is assumed to be private information of the central banker. Agents learn about that policy which to study the ensuing transitional dynamics following a change in monetary policy regime.

Pages: 45 pages
Date: 2003-06
New Economics Papers: this item is included in nep-dge and nep-mac
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