Evidence on the credibility of a central bank's inflation target typically refers to the anchoring of survey-based measures of inflation expectations. However, both the survey question and the anchoring criteria are only loosely connected to the actual inflation target used in monetary policy...

This paper extends the existing literature on the uniqueness and stability conditions for an equilibrium under inflation-forecast-based (IFB) rules. It shows that, for a variety of New Keynesian sticky-price and sticky-inflation models, these are a function not just of the degree of...

Since the 2001 recession, average core inflation has been below the Federal Reserve’s 2% target. This deflationary bias is a predictable consequence of a symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to...

This paper analyzes the time-varying credibility of the Fed's inflation target in an empirical macro model with asymmetric information, where the public has to learn about the actual inflation target from the Fed's interest rate policy. To capture the evolving communication strategy of the Fed,...

We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their...

We examine how private sector agents might learn a new monetary strategy that is adopted while at the ELB. Little can be discovered until the economy improves enough that rates would be near liftoff under the old strategy. Recessionary shocks would thus delay learning while large inflationary...

We tackle two questions in this paper: In the sovereign debt crisis, what moves the euro area inflation outlook and has the firm anchoring of medium to long-term inflation expectations been touched? Deriving densities from a new data set on options on the euro area harmonized index of consumer...

We study how households adjust their medium-term inflation expectations under the new ECB strategy. We find that survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a symmetric 2% target. Yet,...

We use a representative online survey to investigate the inflation expectations of German consumers and the credibility of the ECB's inflation target during the recent high inflation period. We find that credibility has trended downwards since summer 2021, reaching an all-time low in April 2022....

We study the impact of market incompleteness and bounded rationality on the effectiveness of make-up strategies. To do so, we simulate a heterogeneous-agent New Keynesian (HANK) model with reflective expectations and an occasionally-binding effective lower bound (ELB) on the policy rate. Our...