The Quarterly Review of Economics and Finance 52 (2012) 266 271

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The Quarterly Review of Economics and Finance

j ourna l ho me pa ge: www.elsev ier .co

Moneta iew

ChristopSchool of Econo nnesbu

a r t i c l

Article history:Received 2 AuReceived in reAccepted 24 MAvailable onlin

JEL classicatioE43E52

Keywords:CredibilityInation expecMonetary poli

of mos curs. Tw

thesary po

fram cred

nive

1. Introdu

This paper uses a Phillips-curve based method to investi-gate the extent of central bank credibility in eight countries.Since Kydlaas an impoAccording t(2008) credibility also actions. Thi(1992), Berand Viegi (tral banks fact that, atary policy be allowedcontingenci

The moapplied is so-called crannouncemabruptly. Tunemploymination ra

CorresponE-mail add

eliverevision of ination expectations, thereby shifting the Phillipscurve downwards. Ultimately therefore, the test for credibilitymust involve a test of the extent to which ination expecta-tions are negatively related to changes in the short-term interest

1062-9769/$ http://dx.doi.ond and Prescott (1977), credibility has been viewedrtant ingredient in the conduct of monetary policy.o Blinder, Ehrmann, Fratzscher, De Haan, and Jansenibility helps with making disination less costly. Cred-helps the central bank gain public support for itss view is shared by, for example, Bertola and Caballerotola and Svensson (1993) and Demertzis, Marcellino,2008). However, empirical analyses suggest that cen-are not perfectly credible. This may be due to thes Lohman (1992) argues, in order to optimize mone-commitment and retain credibility, central banks must

to exercise exible policy responses to unforeseenes.st relevant place where the theory of credibility isthe Phillips curve. Blinder (2000) notes that theedibility hypothesis says that perfectly credible pre-ents of disination will reduce ination expectationsherefore if the central bank is credible relatively lowent is required to bring about a drastic fall in the

te. By implication, slight increases in the interest rate

ding author. Tel.: +27 11 717 8109; fax: +27 11 717 8081.ress: christopher.malikane@wits.ac.za (C. Malikane).

rate.There are at least two ways in which ination expectations

are extracted. One way relies on surveys as in Berk (1999), Aronand Muellbauer (2007), Ang, Bekaert, and Wei (2007), Arnold andLemmen (2008) and Henzel (2008), and the other extracts inationexpectations from the bond rate. In the latter case, by combin-ing the Fisher relation and the expectations theory of the termstructure, it can be shown that the bond rate contains informa-tion about future ination. Goodfriend (1993) and Mehra (1996)for example, argue that the term structure is useful in predict-ing movements of future ination rates for some periods forthe US.

In this paper, we investigate the extent to which monetary pol-icy is credible in eight countries: South Korea, South Africa, Mexico,New Zealand, Australia, Canada, the United States and the UnitedKingdom. The contribution of this paper is that it uses the Phillipscurve to extract ination expectations. The hypothesis that thispaper seeks to prove is that, if monetary policy is credible, therewill be a negative relationship between ination expectations andthe nominal interest rate, as pointed out by Blinder (2000).

The paper is structured as follows: Section 2 derives themodel that extracts ination expectations from the Phillipscurve, and uses the nominal interest rate to test for thepresence or absence of monetary policy credibility. Section

see front matter 2012 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved.rg/10.1016/j.qref.2012.05.002ry policy credibility: A Phillips curve v

her Malikane , Tshepo Mokokamic and Business Sciences, University of the Witwatersrand, 1 Jan Smuts Avenue, Joha

e i n f o

gust 2011vised form 27 April 2012ay 2012e 1 June 2012

n:

tationscy

a b s t r a c t

The paper investigates the presence residuals from an augmented Philliprobust credibility effects across samplein the sample involving the 1990s, butof the countries do not exhibit monetadopted an explicit ination-targetingframework enhances monetary policyand the output gap are measured.

2012 The Board of Trustees of the U

ction must dm/locate /qre f

rg 2050, South Africa

netary policy credibility in eight countries by ltering theve. Two of the eight countries (US and New Zealand) exhibito countries (South Africa and the UK) exhibit credibility effectse effects disappear in the sample beginning in 2000. The restlicy credibility. Given that seven of the eight countries have

ework, we conclude that there is very weak evidence that thisibility. These results are however sensitive to how ination

rsity of Illinois. Published by Elsevier B.V. All rights reserved.

r drastic declines in ination through a downward

C. Malikane, T. Mokoka / The Quarterly Review of Economics and Finance 52 (2012) 266 271 267

3 provides empirical results of the tests and Section 4concludes.

2. Moneta

The objetion expectof monetaran all-encocurve, whicination, thtion. Our Phfound in Blition over anThe Phillips

t = et +

where t israte, xt reprqt is the logrency, zt is labour mark

and foodt aand t reprWe assumelagged resplence of consome expla

The NewSalido (200(2001), Lindmarginal cofor includinBardsen, JaFlaschel (20share as a cof excess dalso includeand Kennicits impact ogate in theand Svenssoreal fuel anvariables in

The speis a subjecow from tEt(t+1|t),at time t + 1formulate aof agents arforward-looGMM estimtion set is mination, inity prices. Hnot theoretto argue thlags appear

MavroeiNew Keynethat full inf

estimations, may be preferable because they are more robustto mis-specication problems. Using the Generalized EmpiricalLikelihood estimation, Martins and Gabriel (2009) also nd weak

catiow Ken et aly Rue usuillipion sion n.n empass

gap,nentcatiocatio

also is r008)

insigir (20catioe relecatioderaeve

ordoay bn raet = nente bacordoes innto anisanpectt muprovder

inaq. (1

xt1 +

t =ed iible,ges ancet raten ant rat

from expe care. Furre

and andsisteby Kordory policy and ination expectations

ctive of this paper is to construct a measure of ina-ations and to use this measure to test for the presencey policy credibility. Our method begins by specifyingmpassing empirical expectations-augmented Phillipsh includes a measure of demand pressure, import pricee labour share, money supply, fuel and food price ina-illips curve formulation is a modied version of the onender (2000) in that it adds other determinants of ina-d above ination expectations and demand pressure.

curve takes the following form:

xt1 + qt1 + zt1 + mt1 + fuelt1 + foodt1 + t,

(1)

the actual ination rate, et is the expected inationesents demand pressure measured by the output gap,

of the price of imports denominated in domestic cur-the labour share which represents cost push from theet, mt is the deviation of money supply from trend,

fuelt

re real fuel price and food price ination respectivelyesents a disturbance term that is serially uncorrelated., as noted by Rudebusch (2005), that there are inertialonses of ination to its determinants due to the preva-tracts and menu-costs. The above specication requiresnation.

Keynesian literature, e.g. Gali, Gertler, and Lpez-1), Gali, Gertler, and Lpez-Salido (2005), Woodford (2005), Sbordone (2005) among others, uses eitherst or the output gap but not both. Our justicationg both these variables can be found in Gordon (1998),nsen, and Nymoen (2004), Asada, Chen, Chiarella, and06) and Fair (2008). These authors interprete the labourost-push variable over and above standard measuresemand such as the unemployment or output gap. We

excess money supply as suggested by Ando, Brayton,kell (1992) and Mohanty and Klau (2004) to capturen the ination rate. The role of the monetary aggre-

Phillips curve is discussed by Nelson (2003), Gerlachn (2003), Ireland (2004) and Woodford (2006). Lastly,

d food price ination are specied as supply-side shock the triangle model of ination by Gordon (1998).cic way in which ination expectations are formedt of considerable debate. Two ways of specifying ethe work of New Keynesian economists. One way uses

which denotes an expectation at time t of ination, based on the information set t. Another way is to

hybrid specication which assumes that a fraction e backward-looking while the other fraction (1 ) isking. This leads to et = t1 + (1 )Et(t+1|t). Inations of New Keynesian Phillips Curves, the informa-ade up of the instrumental variables such as lags of

terest rate, output gap or unit labour cost and commod-owever Fair (2008) argues that the use of these lags isically appropriate. He says: To use these lags, one hasat the equation is part of a larger model in which the, but this is not very satisfying.dis (2005) further argues that the parameters of thesian Phillips Curve are weakly identied. He arguesormation methods, rather than single-equation GMM

identithe NeBardseSimilarthat arsian Phregressexpresinatio

At aencomoutputcompospecispeci(2010)(1999)Fair (2ers anand Faspecimay bspeciand mo

Howand Sbtion minatioet as compoture thand Sbbecomtaken i

Cogtion exelemenpolicy by Blinis thatwrite E

t =

wherecontainis credto chandisturbinteresinatiointeresarising

Wesistencliteratuaffect cmationFuhrerbe pernoted and Sbn, which casts serious doubts about the validity ofynesian Phillips Curve. The same result is obtained byl. (2004), on the basis of the rst-stage regression F-test.dd and Whelan (2005) show that (a) the instrumentsally used in the GMM estimations of the New Keyne-

s Curve imply that the parameters of the second-stagewill be downward-biased and (b) the reduced-formof the second-stage regression features only lagged

pirical level, Bardsen et al. (2004) nd that the all-ing model that features both labour share and the

and higher lags of ination, makes the forward-looking of the hybrid Phillips curve insignicant. Yet, thisn of the Phillips curve passes standard tests of mis-n in contrast to the NKPC. Boug, Cappelen, and Swensen

nd that the NKPC as formulated by Gali and Gertlermly rejected by the data for both the US and Euro-area.also shows that the FIML estimation of the NKPC deliv-nicant forward-looking component. Gordon (2011)08) nd that the NKPC fails to outperform traditionalns. Gordon (2011) in particular argues that the NKPCvant in high ination episodes whilst the traditionaln with only lagged ination may be relevant in stablete ination environments.r Kozicki and Tinsley (2003), Ireland (2007) and Cogleyne (2008) nd that the observed persistence of ina-e accounted for by the time-variation of underlyingther than lagged ination. In this case we may specifyt + (1 )Et(t+1|t), where t is the time-varying

of trend-ination. This specication does not fea-kward-looking component because empirically, Cogleyne (2008) nd that the backward-looking componentsignicant when time-variation of trend-ination isccount.t of this on-going debate, our paper argues that if ina-ations have a forward-looking element, then such anst be inuenced by the prevailing stance of monetaryided there is some level of credibility, as pointed out(2000). Therefore the basic assumption that we maketion expectations are time-varying. Note that we can) as follows:

qt1 + zt1 + mt1 + fuelt1 + foodt1 + t, (2)

et + t . Ination expectations in the Phillips curve aren the term t. We postulate that if monetary policy

then ination expectations contained in t respondin the short term nominal interest rate. Note that the

term t does not respond to changes in the nominal. The reason for this is that E(et t) = 0. If both expectedd the disturbance term were affected by the nominale, there would be some correlation between the two

the movement in the nominal interest rate.ect that t will exhibit some persistence. This per-n be grounded in the two explanations found in theirstly, t may be persistent because past ination maynt ination through a combination of expectations for-

overlapping wage and price contracts as noted by Moore (1995) and Gordon (1998). Secondly, t maynt because of the time-variation of trend ination asozicki and Tinsley (2003), Ireland (2007) and Cogleyne (2008). Our specication does not favour any of

268 C. Malikane, T. Mokoka / The Quarterly Review of Economics and Finance 52 (2012) 266 271

these explanations. Instead, it encompasses both in the sensethat embedded in t is a persistent process arising from et sinceE(ttj) = 0.

If the central bank is credible, the et component of t is expectedto respond signicantly to changes in the nominal interest rate. Fol-lowing the literature, we assume that t is persistent. This allowsus to formumonetary p

t = (L)twhere rt ithe extent tof t to chanent of thethe nomina(2008) specdriftless rancation woto unity. Acspecifying tetary policyination ennot respondinterest ratlower inat

3. Empiric

The econity involvesrst stage wSbordone (2lated. In ordparametersproposed bwe estimat295) to obtre-estimateunbiased ancurve. The s

t = xt1

+ ftwhere t is

(L) denoteuncorrelateof t as t =which testscan be viewerrors whosstep regressand Rubinfeet al. (1985,

An impoof identicMavroeidis(2009). Marcondence

1 For a myt yt1 = (xgeneralized to

for weak identication. Mavroeidis (2005) uses the so-called con-centration parameter, which is the minimum eigenvalue of theconventional concentration matrix. A concentration parameter lessthan 10 is cwe approacby Bardsen

egre for uld ility age votenneitrt-templatid to cially ecify

+

ore inbecae thaWaldientsermsriod t shi

are e of

poi and couned w

starn, ance thfter twoulork

est1 to 2h cou

the es 1 or thond the i

centrget,e, oured ud foos, foolia, So

thelia wt rate, respred ule 1

usin-squg thelate the following relationship to capture the effects ofolicy credibility on the Phillips curve:

(L)rt + t, (3)s the change in the nominal interest rate, (L) measureso which t is persistent, (L) > 0 captures the responsenges in the nominal interest rate and t is the compo-

composite shock that does not respond to changes inl interest rate. Ireland (2007) and Cogley and Sbordoneify the process that drives trend ination to follow adom walk. On the other hand, the Gordon-type speci-

uld require that the coefcients of lagged ination sumcordingly, these two strands of literature support us inhat (1) = 1. The larger is (L) the more credible is mon-. If (1) < 0, then monetary policy cannot deliver a lowvironment. In this instance, ination expectations do

in a desirable manner to movements in the nominale. That is, increases in the nominal interest rate do notion expectations.

al strategy and results

ometric strategy we employ in our test for credibil- a two-stage procedure in the extraction of t. In thee estimate Eq. (2). From Ireland (2007), Cogley and008) and Gordon (1998) we know that t is autocorre-er to generate unbiased and efcient estimates of the

of the Phillips curve, we follow the two-step procedurey Pindyck and Rubinfeld (1998, p. 590). In the rst stepe Eq. (2) using OLS in line with Judge et al. (1985, p.ain errors which we denote t . In the second step, we

Eq. (2) augmented with lags of t in order to generated efcient estimates of the parameters of the Phillipsecond-step regression takes the form:

+ qt1 + zt1 + mt1 + fuelt1ood1 + (L)t + t, (4)

the error term obtained from the rst-step regression,s the coefcients of the lags of t and t is a seriallyd error-term. From Eq. (4) we then obtain the estimate

(L)t . It is this estimate of t that we take to Eq. (3), for central bank credibility. The method outlined aboveed as 2SLS, in which the rst-step regression generatese lags are then used as instruments for t in the second-ion. Alternatively the procedure mentioned by Pindyckld (1998, p. 590) can be viewed as NLS (see also Judge

chap. 8) and Davidson and McKinnon (2004, chap. 7)).1

rtant issue with Phillips curve estimations is thatation, as brought to the fore by Mavroeidis (2004),

(2005), Bardsen et al. (2004) and Martins and Gabrieltins and Gabriel (2009) compute identication-robustsets for the parameters of the NKPC in order to test

odel yt = xt + ut with ut = ut1 + t , we can show thatt xt1) + t is the same as yt = xt + ut1 + t . This can be

models with higher-order autocorrelation.

stage rto testthis woprobabrst-st

A pendogethe shofor exatains inresponpotentrst sp

rt = r0Therefof rtest ratof the coefc

In tthe penicanresultsthe casturning(2000)of the occurrfore weGodfajeviden1989 aless it framew

The1980QFor eactest forin Tablsions fthe secculate all theas a tabill ratmeasufuel animportAustraM2 andAustrainteressupplymeasu

Tabtion bythe Chiby usinonsidered to indicate weak identication. In this paperh this question by using the simple procedure proposed

et al. (2004). In this procedure, F-statistic of the rst-ssion of the instrumental variable estimation is usedweak identication. If this F-statistic is less than 10be indicative of weak identication. We also report theof the F-statistic to check the joint signicance of theariables.tial problem with the estimation of Eq. (3) is they of rt. It is now common for central banks to userm nominal interest rate as a policy instrument (see

e, Clarida, Gali, and Gertler (2000)). Because t con-on expectations, a forward-looking central bank wouldhanges in ination expectations thereby rendering rtendogenous. In order to account for this possibility, we

a regression of the following form:

t + t. (5) running the regression for Eq. (3), we use t insteaduse t is that component of the changes in the inter-t is purged of inuences from t. Lastly, we make use-statistic to test for the signicance of the sum of the

of the interest rate change in Eq. (3). of sample selection, we estimate the equations forwhere the literature suggests there has been a sig-ft in monetary policy and we also test whether thealtered for the sample in the 2000s. For example inthe US, the literature suggests that 1979 represents ant in the conduct of monetary policy, see Clarida et al.Goodfriend and King (2005) in this regard. In the resttries a recent and signicant shift in monetary policyhen these countries adopted ination targeting. There-t the sample on the basis of the dates provided by Fraga,d Minella (2003). In the case of South Africa, there isat the country adopted implicit ination targeting inhe de Kock Commission recommendations. Neverthe-d be useful to see if the explicit adoption of this policy

strengthened central bank credibility there.imations are conducted using quarterly data from009Q4, sourced from the International Monetary Fund.ntry, we run the regressions for two sample periods to

robustness of the results to sample period. For exampleand 2 in the case of Australia, we estimate the regres-e rst sample 1996Q12009Q4 (denoted 96)*** andsample in 2000Q1 2009Q4 (denoted ****00). We cal-nation rate by using the consumer price index sinceral banks in our study have this measure of ination

the nominal short-term interest rate is the treasurytput is measured by real GDP and the output gap issing the HodrickPrescott lter. The prices for imports,d are measured using the consumer price indices ford, and fuel. In relation to money supply, we use M3 foruth Africa, New Zealand and Mexico. For Korea we use

money market rate for the short-term interest rate. Fore also used the money market rate for the short-term. For the US and the UK we used M2 and M4 for moneyectively. The deviation of money supply from trend issing the HodrickPrescott lter.presents the results for Eq. (4). We test serial correla-g the LjungBox Q(4), the DurbinWatson statistic andared LM test. We test for conditional heteroskedasticity

ARCH Chi-squared test. While the regressions exhibit

C. Malikane, T. Mokoka / The Quarterly Review of Economics and Finance 52 (2012) 266 271 269

Australia Canada South Korea Mexico

-.01

.00

.01

.02

.03

.04

.05

.06

97 98 99 00

.05

.05

.06

01 02

.060

.065

Uni

-.01

.00

.01

.02

.03

.04

.05

95 96 97 98 99 90 92 9

expec

joint signilevel of theidenticatioexhibit an iproblem ofperiod.

On the

t = (L)tvariable. Thination exclosely trac

Table 2 instrumentAll the regrdiagnostic tity. Of interof (1). Onlare there rois present athe one begcredibility eeffects disa2000s the Sgeting. Witcentral ban(2003) amo

Our ndconsistent and Perrierpolicy has bIn the caseacquired crand Swansocompletelyof the Fed fothat beginssistent with

n 19 the ary p

ndonsi

datat forent watioctor , werder01 02 03 04 05 06 07 08 09

Vt

Inflation

-.01

.00

.01

.02

.03

.04

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Vt

Inflation

.00

.01

.02

.03

.04

99 00

New Zealand United Kingdom

00 01 02 03 04 05 06 07 08 09

Vt

Inflation

-.02

.00

.02

.04

.06

.08

.10

.12

86 88 90 92 94 96 98 00 02 04 06 08

Vt

Inflation

-.02

-.01

.00

.01

.02

.03

.04

.05

.06

.07

84 86 88

Fig. 1. Ination and estimated ination

cance of the variables in the rst-stage regression, the rst-stage regression F-statistic shows that there is ann problem in Australia. Only the UK and the US do notdentication problem. For the rest of the countries the

identication appears to be dependent on the sample

basis of the estimations in Table 1, we then extract, which contains ination expectations. Fig. 1 plots thise gure illustrates the signicant role that is played bypectations in the dynamics of ination. The variable tks the actual ination rate.presents estimates of Eq. (3), where t is used as an

betweeble formonet

Ouris not csurveynicanconsistthe invate sein 1998

In o

for rt in order to deal with the issue of endogeneity.essions are adequate in the sense that they pass theests, except for the UK equations in relation to normal-est in the test for credibility is the sign and signicancey for three countries; New Zealand, the UK and the USbust credibility effects. In these countries, credibilitynd signicant in the sample containing the 1990s andinning in 2000. In the case of South Africa, signicantffects are present in the 1990s sample, however theseppear in the 2000s. This is interesting because in theouth African Reserve Bank adopted explicit ination tar-h an explicit ination target, we would have expectedk credibility to be enhanced, as noted by Fraga et al.ng others.ing that monetary policy is not credible in Canada is notwith Amano, Fenton, Tessier, and Van Norden (1997)

and Amano (2000), who nd that Canadas monetaryeen credible since the adoption of ination targeting.

of the US, Goodfriend (1993) nds that the Fed hadedibility since 1983, while Grkaynak, Levin, Marder,n (2007) nd that ination expectations have not been

anchored by the Fed. We nd stronger credibility effectsr the sample beginning in 1983 than the recent sample

in 2000. For the UK and Australia our results are con- Johnson (1998), who uses survey data and nds that

tive measurre-estimatetor and outpwe nd thawith the onbased on thare reporteNeverthelesour samplemeasure of

In orderbetween ouformed twoour measurveys and ththe US, UK, (3) using suif we arrivethe three mcient betweis 0.11, betwbetween outests basedresults thatsistency be03 04 05 06 07 08 09

Vt

Inflation

.030

.035

.040

.045

.050

.055

2002 2003 2004 2005 2006 2007 2008 2009

Vt

Inflation

ted States South Africa

4 96 98 00 02 04 06 08

Vt

Inflation

-.04

-.02

.00

.02

.04

.06

.08

.10

.12

.14

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Vt

Inflation

tations (vt).

84 and 1995 monetary policy targets were not credi-two countries. However, like Johnson (1998), we ndolicy credibility for New Zealand.ing on the credibility of monetary policy for South Africastent with Aron and Muellbauer (2007) who nd, using, that monetary policy credibility effects have been sig-

the country since 2000. Our nding for Mexico is notith Schmidt-Hebbel and Werner (2002). They nd that

n target exerts a credible and strong inuence on pri-expectations. Despite its adoption of ination targeting

nd that the Bank of Korea is not credible. to check whether these ndings are robust to alterna-

es of ination and measurement of the output gap, wed Eqs. (2) and (3) using ination based on the GDP dea-ut detrended using a polynomial time trend. Generallyt the results based on the deator are not consistentes that are contained in this paper. However, the resultse de-trended output are consistent with the results thatd in this paper, except for New Zealand (20002009).s, in view of the fact that all the countries that are in

target CPI-based ination, it is clear that an appropriate ination is the one based on the CPI.

to examine the possible sources of the inconsistencyr results and those found in the literature, we per-

procedures. Firstly, we computed correlations betweene of ination expectations and the ones based on sur-e yield curve for a selected number of economies (viz.Australia and South Africa). Secondly, we estimated Eq.rvey-based and yield curve based measures to check

at the same results. We nd weak correlation amongeasures. For example for the UK the correlation coef-en our measure and the one based on the yield curveeen the yield curve measure and surveys is 0.42, andr measure and surveys is 0.29. In terms of credibility

on the yield and survey expectations, only the US has are consistent with our measure. Therefore, the incon-tween our results and those found using alternative

270C.

Malikane,

T. M

okoka /

The Q

uarterly Review

of Econom

ics and

Finance 52 (2012) 266 271

Table 1Estimations of the Phillips curve (Eq. (4)) (standard errors in parentheses).

Coeff Aus Can Kor Mex NZ UK US SA

96 00 93 00 99 01 93 00 82 00 83 00 93 00

0.43 (0.13) 0.31 (0.13) 0.39 (0.08) 0.41 (0.10) 0.11 (0.05) 0.05 (0.03) 0 . 173(0.09) 0.10 (0.12) 0.87 (0.05) 0.72 (0.06) 0.23 (0.05) 0.42 (0.09) 0.61 (0.17) 0.32 (0.32) 0.004 (0.01) 0.05 (0.02) 0.03 (0.006) 0.05 (0.01) 0.01 (0.01) 0.02 (0.02) 0.07 (0.02) 0.07 (0.02) 0.12 (0.04) 0.06 (0.04) 0 . 253(0.38) 1 . 123(0.42) 0.05 (0.09) 0.06 (0.06) 0 . 012(0.03) 0.07 (0.02) 0.07 (0.03) 0.04 (0.02) 0.007 (0.009) 0.03 (0.01) 0.08 (0.05) 0.18 (0.06) 0.07 (0.03) 0.43 (0.05) 0.63 (0.09)

R2 0.90 0.70 0.60 0.63 0.72 0.81 0.77 0.47 0.93 0.88 0.89 0.92 0.87 0.972(4) 0.26 0.64 0.17 0.53 0.69 0.25 0.19 0.16 0.29 0.40 0.18 0.16 0.12 0.30Q(4) 0.78 0.31 0.93 0.36 0.19 0.60 0.93 0.71 0.87 0.96 0.68 0.68 0.77 0.57DW 1.59 1.57 2.14 2.11 1.96 1.23 1.91 2.03 2.11 1.95 2.04 2.02 1.61 2.292A(4) 0.90 0.44 0.95 0.44 0.29 0.57 0.93 0.86 0.82 0.93 0.48 0.86 0.73 0.60

JB 0.72 0.67 0.32 0.97 0.91 0.70 0.53 0.60 0.91 0.82 0.96 0.49 0.57 0.33Fprob 0.01 0.02 0.00 0.00 0.00 0.06 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.00Fstat 3.60 4.47 6.74 14.19 22.72 2.44 10.34 6.84 20.86 42.53 11.63 32.96 3.91 10.71

Superscript above the estimate of the parameter denotes the lag of the variable. Probability.

Table 2Post ination targeting estimations of credibility (standard errors in parentheses).

Coeff Aus Can Kor Mex NZ UK US SA

96 00 93 00 99 01 93 00 82 00 83 00 93 00

1 1.14 (0.09) 1.45 (0.12) 1.00 (0.00) 0.68 (0.11) 1.00 (0.00) 1.00 (0.00) 0.75 (0.07) 0.96 (0.16) 1.41 (0.09) 1.43 (0.17) 1.49 (0.07) 0.87 (0.11) 1.20 (0.10) 1.22 (0.08)2 0.14 (0.09) 0.82 (0.09) 0.22 (0.08) 0.14 (0.07) 0.46 (0.13) 0.27 (0.25) 0.51 (0.13) 0.35 (0.18) 0.22 (0.08)3 0.17 (0.08) 0.16 (0.20) 0.08 (0.07) 0.59 (0.26) 0.03 (0.00) 0.36 (0.13) 0.04 (0.16)4 0.37 (0.09) 0.32 (0.11) 0.31 (0.00) 0.11 (0.00)5 0.49 (0.11)0 0.33 (0.18) 0.98* (0.23) 0.52* (0.10) 0.79* (0.23) 0.40* (0.17) 0.17** (0.08) 0.10* (0.04) 0.26* (0.12) 0.45* (0.03) 0.46* (0.13) 0.57* (0.07) 0.03* (0.01) 0.56 (0.12) 0.37 (0.25)1 0.17 (0.24) 1.03*(0.23) 0.81* (0.25) 0.30* (0.05) 0.33*(0.15) 0.40* (0.05) 1.17*(0.28)2 0.39 (0.18)(1) 0.22 (0.22) 0.05 (0.30) 0.10 (0.28) 0.15* (0.06) 0.13 (0.29) 0.17* (0.05) 0.80* (0.30)R2 0.85 0.75 0.56 0.53 0.43 0.73 0.90 0.47 0.95 0.73 0.97 0.74 0.86 0.812(4) 0.15 0.28 0.48 0.39 0.68 0.19 0.81 0.11 0.39 0.36 0.47 0.91 0.16 0.48Q(4) 0.56 0.45 0.32 0.20 0.83 0.17 0.48 0.55 0.56 0.67 0.89 0.91 0.62 0.87DW 1.59 2.26 2.14 2.09 2.4 1.93 1.74 1.88 2.04 1.97 1.79 1.82 1.63 1.542A(4) 0.69 0.39 0.30 0.22 0.67 0.75 0.27 0.34 0.63 0.79 0.91 0.56 0.63 0.91

JB 0.63 0.25 0.53 0.63 0.96 0.95 0.17 0.65 0.00 0.00 0.35 0.38 0.40 0.21

* 5% signicance.** 10% signicance. Probability.

C. Malikane, T. Mokoka / The Quarterly Review of Economics and Finance 52 (2012) 266 271 271

measures of expectations may have to do with the way inationexpectations are measured.2

Therefore the conclusion that we draw from these results is that,from the Phillips curve perspective, the evidence that the inationtargeting framework enhances the credibility of monetary policyis mixed. Furthermore, among the countries where there are cred-ibility effects, New Zealand appears to be the only one that hasincreased itstandard eralso observicant in thecase of the the size of tby the stand

4. Conclus

This papcurve in ordcountries. Wlate into a nnominal intnicant andin our samp

This ndpolicy, espein credibilitpose that fucurve approon surveysalternative Phillips cur

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Monetary policy credibility: A Phillips curve view1 Introduction2 Monetary policy and inflation expectations3 Empirical strategy and results4 ConclusionReferences