Credibility and Explicit Inflation Targeting / Robert G. King, Yang K. Lu.

Format:

Book

Author/Creator:

King, Robert G.

Contributor:

National Bureau of Economic Research.

Lu, Yang K.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30012.

NBER working paper series no. w30012

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

In his 2004 inflation targeting manifesto, Marvin Goodfriend described US monetary policy as implicit inflation targeting and advocated explicit targeting. Summarizing the 1965-2000 US inflation experience, he highlighted the importance of evolving Fed credibility, which accords with our recent work using a quantitative New Keynesian model. We define credibility as policy consistency with a publicly announced framework and develop two lessons theoretically. First, under explicit targeting, no conflict arises between flexible inflation targeting and maintaining/accumulating credibility. Second, implicit targeting reduces the effectiveness of expectations management and stabilization policy, as well as opening the door to costly inflation scare episodes

Notes:

Print version record

May 2022.