Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323623 
Year of Publication: 
2021
Citation: 
[Journal:] Revue économique [ISSN:] 1950-6694 [Volume:] Vol. 72 [Issue:] 1 [Publisher:] Presses de Sciences Po [Place:] s.l. [Year:] 2021 [Pages:] 43-63
Publisher: 
Presses de Sciences Po, s.l.
Abstract: 
A minimal central bank credibility, with a non-zero probability of not reneging his commitment (“quasi-commitment”), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy-maker will renege his commitment (“optimal discretion”), leads to the local instability of inflation dynamics. In the textbook example of the New Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation.
Subjects: 
Ramsey optimal policy
New-Keynesian Phillips curve
Imperfect commitment
Discretion
Imperfect credibility
JEL: 
C61
C62
E32
E52
E58
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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