IMF Working Papers

The Monetary Policy Credibility Channel and the Amplification Effects in a Semi-structural Model

By Thitipat Chansriniyom, Natan P. Epstein, Valeriu Nalban

September 25, 2020

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Thitipat Chansriniyom, Natan P. Epstein, and Valeriu Nalban. The Monetary Policy Credibility Channel and the Amplification Effects in a Semi-structural Model, (USA: International Monetary Fund, 2020) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The paper extends a standard semi-structural model to account for nonlinear and asymmetric effects of monetary policy credibility. In our setting, central bank credibility is proportional to the deviation of inflation expectations from the announced inflation target, with positive deviations being more costly compared to negative ones. A loss in policy credibility as a result of shocks leads to a more persistent, backward-looking inflation process, and is associated with lower output. We find that the extended model with credibility effects matches well the key macroeconomic data over specific past episodes for Indonesia and Philippines and consider its adaptation to integrated policy frameworks as an area for further exploration.

Subject: Central bank policy rate, Financial services, Inflation, Inflation targeting, Monetary policy, Output gap, Price stabilization, Prices, Production

Keywords: Asia and Pacific, Central bank policy rate, Exchange rate, High-inflation regime, Indonesia, Inflation, Inflation development, Inflation deviation, Inflation expectation, Inflation expectations, Inflation persistence, Inflation target, Inflation targeting, Inflation variability, Monetary policy credibility, MP credibility, Output gap, Philippines, Price stabilization, Southeast Asia, Transmission mechanism, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/201

  • Stock No:

    WPIEA2020201

  • ISBN:

    9781513557717

  • ISSN:

    1018-5941

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