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

Author/Editor: Laxton, Douglas | N'Diaye, Papa M'B. P.
Authorized for Distribution: December 1, 2002
Electronic Access: Free Full Text (PDF file size is 2,178KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
Series: Working Paper No. 02/220
Subject(s): Monetary policy | Unemployment | Inflation
Author's keyword(s): Phillips Curve | Unemployment | Monetary Policy | Lucas Critique
    Published:   December 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2202002   Pages:   39
    Price:   US$15.00
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