Credibility and monetary policy in a model with growth |
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Authors: | Muscatelli V Anton; Tirelli Patrizio |
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Institution: | * Department of Economics, University of Glasgow Adam Smith Building, Glasgow G12 8RT; e-mail: V.A.Muscatelli{at}socsci.gla.ac.uk
Universitá Statale Milano |
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Abstract: | We examine the implications for monetary policy design of includinglearning-by-doing effects in a macroeconomic model. We showthat an inflation bias arises because monetary surprises maybe exploited to maximise potential output by temporarily raisingthe rate of human capital accumulation. Our model also providesan alternative explanation for the empirical evidence linkinginflation and growth, where the causal link goes from slow growthto high inflation. Unlike traditional credibility models, aninflationary bias can persist even when the authorities do notwish to offset labour market distortions through monetary surpriseswhich undercut the median voter's income. |
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