Evaluating Policy Rules Under Imperfect Credibility
December 1, 1991
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: 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
Evaluation of policy rules using empirical macroeconomic models is usually done on the assumption that the rules are perfectly credible. However, there are usually circumstances that cause the authorities to abandon any given rule. The public's expectations reflect this possibility. In the paper, credibility is assumed to depend on the probability that the authorities will abandon a rule because the resulting utility exceeds that from maintaining the rule. Simulations of a disinflation policy leading to price stability are presented. Its credibility varies over time, depending on the paths for output and inflation.
Subject: Capacity utilization, Inflation, Prices, Production
Keywords: Capacity utilization, disinflation policy, fall-back policy, Inflation, policy choice, policy goal, policy rule, WP
Pages:
24
Volume:
1991
DOI:
Issue:
128
Series:
Working Paper No. 1991/128
Stock No:
WPIEA1281991
ISBN:
9781451855029
ISSN:
1018-5941
