If a country's central bank lacks credibility and public inflation expectations are not firmly anchored, the economic contraction required to lower the inflation rate by a specific amount will be less severe than in a country with a highly credible central bank.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
The Cost of Reducing Inflation
Imagine two countries, Country A and Country B, both experiencing an undesirable inflation rate of 8%. The central bank of Country A has a long-standing, credible reputation for maintaining price stability, and the public generally believes it will achieve its long-term inflation target of 2%. The central bank of Country B, however, has a history of inconsistent policy, and the public is skeptical of its commitment to lowering inflation. If both central banks implement identical policies to redu
The Mechanism of Disinflation with Credible Policy
If a country's central bank lacks credibility and public inflation expectations are not firmly anchored, the economic contraction required to lower the inflation rate by a specific amount will be less severe than in a country with a highly credible central bank.