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The Monetary Policy Credibility Channel and the Amplification Effects in a Semi-structural Model
Author:
Thitipat Chansriniyom null

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Mr. Natan P. Epstein
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Valeriu Nalban null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 201
Language:
English
Publication Date:
25 Sep 2020
DOI:
https://doi.org/10.5089/9781513557717.001
ISBN:
9781513557717
ISSN:
1018-5941
Pages:
34
Keywords:
WP; inflation expectation; transmission mechanism; MP credibility; high-inflation regime; inflation variability; exchange rate; inflation persistence; inflation target; inflation deviation; inflation development; Inflation; Output gap; Central bank policy rate; Inflation targeting; Price stabilization; Southeast Asia; Monetary policy credibility; Inflation expectations; Indonesia; Philippines; Asia and Pacific
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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund