Conquering Credibility for Monetary Policy Under Sticky Confidence
Autor(a) principal: | |
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Data de Publicação: | 2015 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Revista Brasileira de Economia (Online) |
Texto Completo: | http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402015000200251 |
Resumo: | We derive a best-reply monetary policy when the confidence by price setters on the monetary authority’s commitment to price level targeting may be both incomplete and sticky. We find that complete confidence (or full credibility) is not a necessary condition for the achievement of a price level target even when heterogeneity in firms’ price level expectations is endogenously time-varying and may emerge as a long-run equilibrium outcome. In fact, in the absence of exogenous perturbations to the dynamic of confidence building, it is the achievement of a price level target for long enough that, due to stickiness in the state of confidence, rather ensures the conquering of full credibility. This result has relevant implications for the conduct of monetary policy in pursuit of price stability. One implication is that setting a price level target matters more as a means to provide monetary policy with a sharper focus on price stability than as a device to conquer credibility. As regards the conquering of credibility for monetary policy, it turns out that actions speak louder than words, as the continuing achievement of price stability is what ultimately performs better as a confidence-building device. |
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Conquering Credibility for Monetary Policy Under Sticky ConfidencePrice Level TargetingBest-Reply Monetary PolicySticky ConfidenceEvolutionary DynamicsWe derive a best-reply monetary policy when the confidence by price setters on the monetary authority’s commitment to price level targeting may be both incomplete and sticky. We find that complete confidence (or full credibility) is not a necessary condition for the achievement of a price level target even when heterogeneity in firms’ price level expectations is endogenously time-varying and may emerge as a long-run equilibrium outcome. In fact, in the absence of exogenous perturbations to the dynamic of confidence building, it is the achievement of a price level target for long enough that, due to stickiness in the state of confidence, rather ensures the conquering of full credibility. This result has relevant implications for the conduct of monetary policy in pursuit of price stability. One implication is that setting a price level target matters more as a means to provide monetary policy with a sharper focus on price stability than as a device to conquer credibility. As regards the conquering of credibility for monetary policy, it turns out that actions speak louder than words, as the continuing achievement of price stability is what ultimately performs better as a confidence-building device.Fundação Getúlio Vargas2015-06-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersiontext/htmlhttp://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402015000200251Revista Brasileira de Economia v.69 n.2 2015reponame:Revista Brasileira de Economia (Online)instname:Fundação Getulio Vargas (FGV)instacron:FGV10.5935/0034-7140.20150011info:eu-repo/semantics/openAccessSilveira,Jaylson Jair daLima,Gilberto Tadeueng2015-07-22T00:00:00Zoai:scielo:S0034-71402015000200251Revistahttp://bibliotecadigital.fgv.br/ojs/index.php/rbe/issue/archivehttps://old.scielo.br/oai/scielo-oai.php||rbe@fgv.br1806-91340034-7140opendoar:2015-07-22T00:00Revista Brasileira de Economia (Online) - Fundação Getulio Vargas (FGV)false |
dc.title.none.fl_str_mv |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
title |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
spellingShingle |
Conquering Credibility for Monetary Policy Under Sticky Confidence Silveira,Jaylson Jair da Price Level Targeting Best-Reply Monetary Policy Sticky Confidence Evolutionary Dynamics |
title_short |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
title_full |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
title_fullStr |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
title_full_unstemmed |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
title_sort |
Conquering Credibility for Monetary Policy Under Sticky Confidence |
author |
Silveira,Jaylson Jair da |
author_facet |
Silveira,Jaylson Jair da Lima,Gilberto Tadeu |
author_role |
author |
author2 |
Lima,Gilberto Tadeu |
author2_role |
author |
dc.contributor.author.fl_str_mv |
Silveira,Jaylson Jair da Lima,Gilberto Tadeu |
dc.subject.por.fl_str_mv |
Price Level Targeting Best-Reply Monetary Policy Sticky Confidence Evolutionary Dynamics |
topic |
Price Level Targeting Best-Reply Monetary Policy Sticky Confidence Evolutionary Dynamics |
description |
We derive a best-reply monetary policy when the confidence by price setters on the monetary authority’s commitment to price level targeting may be both incomplete and sticky. We find that complete confidence (or full credibility) is not a necessary condition for the achievement of a price level target even when heterogeneity in firms’ price level expectations is endogenously time-varying and may emerge as a long-run equilibrium outcome. In fact, in the absence of exogenous perturbations to the dynamic of confidence building, it is the achievement of a price level target for long enough that, due to stickiness in the state of confidence, rather ensures the conquering of full credibility. This result has relevant implications for the conduct of monetary policy in pursuit of price stability. One implication is that setting a price level target matters more as a means to provide monetary policy with a sharper focus on price stability than as a device to conquer credibility. As regards the conquering of credibility for monetary policy, it turns out that actions speak louder than words, as the continuing achievement of price stability is what ultimately performs better as a confidence-building device. |
publishDate |
2015 |
dc.date.none.fl_str_mv |
2015-06-01 |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402015000200251 |
url |
http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402015000200251 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
10.5935/0034-7140.20150011 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
text/html |
dc.publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
dc.source.none.fl_str_mv |
Revista Brasileira de Economia v.69 n.2 2015 reponame:Revista Brasileira de Economia (Online) instname:Fundação Getulio Vargas (FGV) instacron:FGV |
instname_str |
Fundação Getulio Vargas (FGV) |
instacron_str |
FGV |
institution |
FGV |
reponame_str |
Revista Brasileira de Economia (Online) |
collection |
Revista Brasileira de Economia (Online) |
repository.name.fl_str_mv |
Revista Brasileira de Economia (Online) - Fundação Getulio Vargas (FGV) |
repository.mail.fl_str_mv |
||rbe@fgv.br |
_version_ |
1754115905615298560 |