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

December 1, 2002

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.

Subject: Financial services, Inflation, Inflation targeting, Labor, Long term interest rates, Monetary policy, Prices, Real interest rates, Unemployment

Keywords: Inflation, inflation expectation, Inflation targeting, Long term interest rates, Lucas Critique, Monetary Policy, Phillips Curve, Real interest rates, short-run unemployment inflation trade-off, short-run unemployment-inflation trade-off, Unemployment, unemployment gap, unemployment-inflation process, WP

Pages:
39
Volume:
2002
DOI:
https://doi.org/10.5089/9781451875218.001
Issue:
220
Series:
Working Paper No. 2002/220
Stock No:
WPIEA2202002
ISBN:
9781451875218
ISSN:
1018-5941

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