FAST FIVE: Englander: Is The Fed (Or Any Central Bank) Still Credible?

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The basic model includes a Phillip's curve, a zero lower bound and a policy rule.

They require parametrisation that reflects empirical regularities, which are very hard to come by.

To his credit, Fed Chair Powell has admitted: “In models, great confidence in central bankers is achieved by assumption.” The credibility assumption requires the model to be correct and for investors to have confidence that the central bank can stick to it.

In fact, the commitment outcome could be worse than outcomes in an ad hoc policy-making framework.

Fed Chairs have been reluctant to give anything but the vaguest of advice on fiscal policy and have indicated that they see fiscal policy as an input into monetary policy but not as a topic requiring any Fed decision.

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