The Theory of Credibility and the Reputation-Bias of Policy.
The theory of policy credibility has been influential in both the design of monetary policymaking institutions and in the implementation of policy. In particular, the idea that 'reputation' is important has been widely accepted. However, careful attention to the assumptions and implications of the theory reveals many sources of doubt as to its empirical value. First, the theory is implausible and, even if taken seriously, does not point to many of the conclusions frequently supposed to be bas...Expand abstract
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