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Long-term Inflation Expectations and Central Bank Credibility

Author

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  • Bopjun Gwak

    (Goethe University Frankfurt)

Abstract

This paper proposes a new measure of central bank credibility. I develop an inflation expectations model that specifies inflation expectations' mean-reverting properties, which is assumed to indicate the level of credibility. Estimating the model with US data, I find that the new measure, in general, shows a similar feature of changes in central bank credibility to existing indicators. However, the index in this paper captures the more fundamental changes in credibility. According to the index, central bank credibility in the recent period is maintained at its lowest level since 2017.

Suggested Citation

  • Bopjun Gwak, 2020. "Long-term Inflation Expectations and Central Bank Credibility," Economics Bulletin, AccessEcon, vol. 40(3), pages 2320-2335.
    • Handle: RePEc:ebl:ecbull:eb-20-00364
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Inflation Expectations; Inflation Targeting; Central Bank Credibility; Smooth Transition Autoregressive; Regime Switching;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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