Monetary Policy Credibility and the Unemployment-Inflation Trade-Off: Some Evidence from 17 Industrial Countries

Laxton, Douglas; N'Diaye, Papa

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Monetary Policy Credibility and the Unemployment-Inflation Trade-Off: Some Evidence from 17 Industrial Countries

IMF Working Paper No. 02/220

40 Pages Posted: 12 Feb 2006

See all articles by Douglas Laxton

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Papa N'Diaye

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: December 2002

Abstract

Using data on long-term interest rates for 17 industrial countries, this paper develops some simple measures of monetary policy credibility and then tests if such measures improve the out-of-sample forecasts of conventional models of the inflation-unemployment process. The results provide some evidence in favor of the Lucas critique by showing that the short-run unemployment-inflation trade-off tends to improve in countries that are successful in providing low and stable inflation.

Keywords: Phillips Curve, Unemployment, Monetary Policy, Lucas Critique

JEL Classification: C51, E31, E52

Suggested Citation: Suggested Citation

Laxton, Douglas and N'Diaye, Papa, Monetary Policy Credibility and the Unemployment-Inflation Trade-Off: Some Evidence from 17 Industrial Countries (December 2002). IMF Working Paper No. 02/220, Available at SSRN: https://ssrn.com/abstract=880908