A Measure for Credibility: Tracking US Monetary Developments

30 Pages Posted: 18 Dec 2008

See all articles by Maria Demertzis

Maria Demertzis

Bruegel

Massimiliano Giuseppe Marcellino

European University Institute; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Nicola Viegi

University of Pretoria - Department of Economics

Date Written: November 2008

Abstract

Our objective is to identify a way of checking empirically the extent to which expectations are de-coupled from inflation, how well they might be anchored in the long run, and at what level. This methodology allows us then to identify a measure for the degree of anchorness, and as anchored expectations are associated with credibility, this will serve as a proxy for credibility. We apply this methodology to the US history of inflation since 1963 and examine how well our measure tracks the periods for which credibility is known to be either low or high. Of particular interest to the validity of the measure is the start of the Great Moderation. Following the narrative of a number of well documented incidents in this period, we check how well our measure captures both the evolution of credibility in US monetary policy, as well as reactions to inflation scares.

Keywords: anchors for expectations, credibility, Great Inflation, Great Moderation

JEL Classification: E52, E58

Suggested Citation

Demertzis, Maria and Marcellino, Massimiliano and Viegi, Nicola, A Measure for Credibility: Tracking US Monetary Developments (November 2008). CEPR Discussion Paper No. DP7036. Available at SSRN: https://ssrn.com/abstract=1311160

Maria Demertzis

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Massimiliano Marcellino (Contact Author)

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nicola Viegi

University of Pretoria - Department of Economics ( email )

Pretoria 0002
South Africa

HOME PAGE: http://www.nviegi.net

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
463
PlumX Metrics