This credibility problem stems from the assumed goal of increasing employment above its natural rate by means of inflationary surprises. Rational private agents anticipate this outcome and react by increasing the expected rate of inflation. The result is an inflationary bias without any effect on employment. However, in a multi-period setting, precommitment of monetary policy to adhere to price stability may be possible.
This may be a book of interest to many of you. I believe it will be launched at the Africa Economic Summit 2004, which will be held from 2 to 4 June in Maputo, Mozambique. 2.