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Marcelo de C. Griebeler and Guilherme Stein
''Credibility is not enough: the importance of common knowledge to anchor expectations''
( 2018, Vol. 38 No.2 )
In a linear model, we show that when individuals form their inflation expectations taking into account the others' expectations, credibility - defined as the individual belief that the central bank is speaking the truth and has enough technical capacity to achieve the announced targets - is not sufficient to anchor the aggregate expectations. Instead, we show that it is necessary to add common knowledge of the individual credibility in order to guarantee anchoring.
Keywords: inflation expectations; credibility; common knowledge.
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E4 - Money and Interest Rates: General
Manuscript Received : Jan 03 2018 Manuscript Accepted : Apr 30 2018

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