[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-325361-105":59,"doc-detail-325361-en":131},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":124,"head_meta":126,"extra_data":128,"updated_unix":130},105,"en","entral-bank-credibility","entral Bank Credibility","","This Economic Commentary examines why monetary policy credibility matters, focusing on how policymakers’ incentives to say one thing and later do another can undermine public trust. Using a simple model, it studies how credibility affects beliefs about future policy, the trade-off between unanticipated inflation and unemployment, and the role of central bank transparency in shaping inflation expectations. The discussion connects these mechanisms to the late-1970s and early-1980s U.S. inflation experience.",{"@graph":69,"@context":123},[70,84,106],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/entral-bank-credibility/325361/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/entral-bank-credibility/325361.png","ImageObject",300,407,{"name":92,"@type":93},"Hazel","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-29","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":105},"InteractionCounter",{"@type":104},"ViewAction",11,{"@type":107,"mainEntity":108},"FAQPage",[109,115,119],{"name":110,"@type":111,"acceptedAnswer":112},"What is the time inconsistency problem discussed in the commentary?","Question",{"text":113,"@type":114},"Policymakers may have incentives to announce one course of action and later do something different. This creates a credibility problem in macroeconomics and monetary policy.","Answer",{"name":116,"@type":111,"acceptedAnswer":117},"How does credibility relate to inflation and unemployment in the model?",{"text":118,"@type":114},"Central banks face a short-term trade-off between unanticipated inflation and unemployment. Credibility influences how the public expects future policy actions and therefore affects outcomes.",{"name":120,"@type":111,"acceptedAnswer":121},"Why was U.S. monetary policy credibility important in the late 1970s and early 1980s?",{"text":122,"@type":114},"After double-digit inflation in the late 1970s, the public may have believed the central bank could not maintain low stable inflation. Tight policy in the early 1980s reduced inflation but involved recessions, while policymakers regained credibility and shaped expectations.","https://schema.org",{"og:url":83,"og:type":125,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":127,"canonical":83},"index,follow",{"doc_id":129,"site_id":62},325361,1790110285,{"code":4,"msg":5,"data":132},{"doc_id":129,"user_id":133,"nickname":92,"user_avatar":134,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":105,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":140,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":67,"update_tm":144,"read_time":145,"preview_page_count":4},137441390410,"https://ap-avatar.wpscdn.com/avatar/2000252f4ab5702993?_k=1776741390130283984","# entral Bank Credibility\n\nby Paul Gomme  \nNoe piz wine dad Prscotand Finn Kydland introduced the idea ofa “time inconsistency problem”into themacroeconomics lexicon to representthe fact that policymakers sometimeshave an incentive to say one thing,butlater do something elseOne solution tothe time inconsistency problem is forpolicymakers to develop a reputation forcredibility,recognizing that the long-term benefits of having reputationexceed the short-run costs  \nTo understand why a monetary policy-maker would be concerned about credi-bility,think back to a time when theFederal Reserve arguably had damagedits eredibility.At the close of the 1970s,inflation ran in the double digits.Thepublic may well have concluded that thecentral bank was either unwilling orunable to maintain low,stable inflationrates.Against this backdrop.in the early1980s the Federal Reserve ran tightmonetary policy.While it successfullybrought inflation down to around 3 per-cent,the gain was associated with tworecessions.But,in the process,monetarypolicymakers regained their reputationfor delivering low inflation.  \nAlthough many people credit AlanGreenspan with ushering in a new eraof low inflation,they do not realize theextent ofhis contributions.Before hetook office,much of the initial work oftaming inflation had been initiated,butduring his tenure the Federal Reservereduced inflation further and maintainedit,built credibility,and successfullymanaged inflation expectations.Greenspan has described his contribu-tion as recognizing changes in the U.S.economy and the ways in which thesechanges could be best used to maintainlow inflation.Others have pointed to therole of clear communication and thegreater transparency of the Federal Open  \nMarket Committee (FOMC)—thepolicymaking arm of the FederalReserve—in conditioning expectationsregaruing future policy actions.Currentpolicymakers often emphasize theimportance of credibility and cite the keyrole it has played over the past 25 yearsin keeping the economy on a steady andexpanding course  \nWhy should eredibility matter so much?Afier all,credibility concerns people'sbeliefs about what policymakers will doin the future,not their appraisal of whatpolicymakers have delivered so far.Andthinking back on our battle with inflationin the 1980s,we might wonder whetherthe Federal Reserve's credibility (or lackof it)was involved in the length of timeit took to tame inflation or what it costthe U.S.economy.  \nTo answer these questions constructivelyrequires that we think systematicallyabout the factors involved.Notions like\"credibility\"—which,like most abstractconcepts,is somewhat nebulous—mustbe defined precisely.In this EconomicCommentary we will construct a simplemodel so we can study these questionssystematically,and we will use it to gainsome insight into the importance ofcredibility to monetary policy.  \n## ■ Key Elements of a Modelof Credibility\n\nIn general,centra bankers care aboutinflation and unemployment.The objec-tives set for the FOMC by Congress,forexample,are to promote \"the goals ofmaximum employment,stable prices,and moderate long-term interest rates.”But one of the fundamental problems ofcentral banking is that,in the short term,there is a trade-off between (unantici-pated)inflation and unemployment:Temporarily lower unemployment can begained at the cost of permanently higherinflation.What to do about this trade-off  \nAugust 1,2006  \nMajor League Baseball Commis-sioner Bud Selig announced he wouldcrack down on steroid use in baseball,hoping to stop players from dopingHe was forced to discipline stars likeRafael Palmeiro,possibly hurting thegame immediately,in order todevelop a reputation for being toughon steroids.The Federal ReserveSystem has worked hard over the pastfew decades not only to lower infla-tion and keep it low,but also to con-vince the public that it is dedicated todelivering low inflation over the longhaul.This Commentary explains whycredibility is so important to mone-tary policymakers.  \n","cbCaioFeWrS0nm5t","https://ap.wps.com/l/cbCaioFeWrS0nm5t","pdf",1277800,"English","# Key Elements of a Model of Credibility\n## Monetary policy objectives and the inflation-unemployment trade-off\n## Credibility, public expectations, and central bank types\n## Imperfect control over inflation and unobservable policy types","[{\"question\":\"What is the time inconsistency problem discussed in the commentary?\",\"answer\":\"Policymakers may have incentives to announce one course of action and later do something different. This creates a credibility problem in macroeconomics and monetary policy.\"},{\"question\":\"How does credibility relate to inflation and unemployment in the model?\",\"answer\":\"Central banks face a short-term trade-off between unanticipated inflation and unemployment. Credibility influences how the public expects future policy actions and therefore affects outcomes.\"},{\"question\":\"Why was U.S. monetary policy credibility important in the late 1970s and early 1980s?\",\"answer\":\"After double-digit inflation in the late 1970s, the public may have believed the central bank could not maintain low stable inflation. Tight policy in the early 1980s reduced inflation but involved recessions, while policymakers regained credibility and shaped expectations.\"}]","entral Bank Credibility | PDF",1789970325,13]