The New Keynesian reference framework highlights the role played by expectations in the transmission of monetary policy. The article presents the main credibility problems that are likely to arise, illustrated by the experience of various central banks.

Optimal monetary policy is sensitive to the Phillips curve specification used to represent the dynamics of inflation and output. Most recent literature has used a new Keynesian Phillips Curve based on Calvo pricing. This paper shows that this workhorse model is not robust to relatively minor...