Expected consumption growth increases the real interest rate as one tries to smooth consumption over time. We demonstrate that placing it in the Fisher relation 1) is consistent with the Euler equation governing the purchase of nominal bonds, 2) explains observed procyclicality of the real...

We inspect how inflation target announcements are instrumental in building central bank credibility and shaping inflation expectations. Investigating the role of announcements by using a time varying credibility measure, we find that both the accuracy and the frequency of inflation announcements...