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Evaluating Policy Rules Under Imperfect Credibility
Author:
Mr. Paul R Masson
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Mr. Steven A. Symansky
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Series:
IMF Working Papers
Volume/Issue:
Volume 1991: Issue 128
Language:
English
Publication Date:
01 Dec 1991
DOI:
https://doi.org/10.5089/9781451855029.001
ISBN:
9781451855029
ISSN:
1018-5941
Pages:
24
Keywords:
WP; policy rule; disinflation policy; policy goal; policy choice; fall-back policy; Inflation; Capacity utilization
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1991: Issue 128