Testing for Credibility Effects

ByPierre-Richard Agénor, Mark P. Taylor

November 1, 1991

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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

This paper examines some recent techniques designed to draw inferences about the credibility of changes in macroeconomic policy regimes. An alternative two-step approach, based on the decomposition between permanent and transitory components of a "credibility variable" is proposed. The methodology is then used to test for the existence of a credibility effect in the Cruzado stabilization plan implemented in Brazil in 1986.

Subject: Exchange rates, Foreign exchange, Government debt management, Inflation, Price controls, Prices, Public financial management (PFM)

Keywords: disinflation policy, disinflationary policy, excess demand, exchange rate, Exchange rates, Government debt management, Inflation, inflation rate, policy credibility, policy outcome, policy predictability, policy regime changes, policy target, policy variable, Price controls, stabilization policy, state vector, two-step methodology, WP

Pages:
33
Volume:
1991
DOI:
https://doi.org/10.5089/9781451853254.001
Issue:
110
Series:
Working Paper No. 1991/110
Stock No:
WPIEA1101991
ISBN:
9781451853254
ISSN:
1018-5941

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Notes

Also published in Staff Papers, Vol. 39, No. 3, September 1992.

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