Building on the Friedman-Phelps insight, Finn Kydland and Ed Prescott showed that a central bank engaged in discretionary policies has an incentive to promise low inflation, but then to run an expansionary monetary policy that produces higher inflation without lowering unemployment.
In a contribution that helped earn these authors the Nobel Prize in 2004, Kydland and Prescott showed that, to be credible, central bankers must demonstrate that they are fully committed to a low-inflation objective. Full commitment in the Kydland-Prescott framework, necessitates independence from political pressures to follow inflationary monetary policies. Otherwise, once inflation expectations become entrenched, it can be very difficult to reduce them.