On the one side, a full-credibility environment is one in which there is no dispute over the “true” objective of monetary policy and about the central bank’s determination to do all it takes to keep inflation low and steady around that objective. Markets are not inclined to project an observed inflationary shock far into the future, as expectations are well-anchored.
That, indeed, has been the defining feature of the Japanese economy from the late 1980s until now. Japan's experience shows how hard it is to recover from the deflationary pressure engendered by the bust if it seriously compromises the banking system. Australia had an experience qualitatively like this, though not quantitatively as serious, with commercial property in the late 1980s and early 1990s.