Evaluating Policy Rules Under Imperfect Credibility

24 Pages Posted: 15 Feb 2006

See all articles by Paul R. Masson

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: December 1991

Abstract

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.

JEL Classification: D84, E52

Suggested Citation

Masson, Paul R. and Symansky, Steven, Evaluating Policy Rules Under Imperfect Credibility (December 1991). IMF Working Paper No. 91/128, Available at SSRN: https://ssrn.com/abstract=885168

Paul R. Masson (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

The Brookings Institution ( email )

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202-797-2968 (Fax)

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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