Historical estimates of the Fisher effect and the informational content in the yield curve may not be relevant after a change in monetary policy. This paper uses a small dynamic rational expectations model with staggered price setting to study how central bank preferences (and thereby monetary...

This paper proposes a new approach to assess the degree of anchoring of inflation expectations. We extend the static setup of the predominant news regressions by introducing exponential smooth transition autoregressive dynamics. Our approach provides estimates of a market-perceived inflation...

In this paper we systematically evaluate how central banks respond to deviations from the inflation target. We present a stylized New Keynesian model in which agents' inflation expectations are sensitive to deviations from the inflation target. To (re-) establish credibility, monetary policy...

The paper investigates the presence of monetary policy credibility in eight countries by filtering the residuals from an “augmented” Phillips curve. Two of the eight countries (US and New Zealand) exhibit robust credibility effects across samples. Two countries (South Africa and the UK)...

Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the...

A simple test of inflation target credibility is constructed by subtracting the maximum and minimum inflation rates consistent with the inflation targets from the yields to maturity on nominal bonds. This results in a target-consistent range of real yields on nominal bonds. If expected real...

This chapter investigates the implications of adaptive learning in the private sector's formation of inflation expectations for the conduct of monetary policy. We first review the literature that studies the implications of adaptive learning processes for macroeconomic dynamics under various...

This paper derives the optimal monetary-policy rule in a simple model with anchored inflation expectations and an effective lower bound (ELB) on interest rates, assuming a long-run inflation goal of 2%. With fully anchored expectations, the optimal policy is a version of average inflation...

Nowadays, it is widely believed that greater disclosure and clarity over policy may lead to greater predictability of central bank actions. We examine whether communication by the European Central Bank (ECB) adds information compared to the information provided by a Taylor rule model in which...

In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction...