Credibility and monetary policy in a model with growth

Muscatelli, V. A. and Tirelli, P. (1998) Credibility and monetary policy in a model with growth. Oxford Economic Papers, 50(4), pp. 644-662. (doi: 10.1093/oep/50.4.644)

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We examine the implications for monetary policy design of including learning-by-doing effects in a macroeconomic model. We show that an inflation bias arises because monetary surprises may be exploited to maximise potential output by temporarily raising the rate of human capital accumulation. Our model also provides an alternative explanation for the empirical evidence linking inflation and growth, where the causal link goes from slow growth to high inflation. Unlike traditional credibility models, an inflationary bias can persist even when the authorities do not wish to offset labour market distortions through monetary surprises which undercut the median voter's income.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Muscatelli, Professor Anton
Authors: Muscatelli, V. A., and Tirelli, P.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Oxford Economic Papers
Publisher:Oxford University Press
ISSN (Online):1464-3812

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