Inflation Targeting, Announcements, and Imperfect Credibility

Diana Weymark (diana.weymark@vanderbilt.edu)

No 124, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: In virtually all theoretical studies of inflation targeting, the announced inflation target is treated as being fully credible. However, inflation targeting policies have typically been implemented after protracted periods of poor inflation performance when the policy authority's credibility is quite low. Because credibility imperfections may have a significant impact on inflation expectations and therefore on the monetary transmission mechanism, policies that are optimal under full credibility may not yield the best outcomes under imperfect credibility. In this article I use a simple dynamic model to study the implications that credibility imperfections have for the formulation of optimal inflation targeting policies.

Keywords: Inflation targeting; credibility; announcements; inflation bias (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2001-10, Revised 2002-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0124

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