The Credibility of Central Bank Announcements
22 Pages Posted: 28 Oct 2002
Date Written: August 2002
In this paper, we present a monetary policy game in which the central bank has a private forecast of supply and demand shocks. The public needs to form its inflationary expectations and can make use of central bank announcements. However, because of the credibility problem that the central bank faces, the public will not believe a precise announcement. By extending the arrangement proposed by Garfinkel and Oh (1995) to a model that includes private information about both demand and supply shocks, we investigate the feasibility of making imprecise credible announcements concerning the rate of inflation.
Keywords: monetary policy, private information, announcements
JEL Classification: E52, E58
Suggested Citation: Suggested Citation