The Theory of Monetary Policy Credibility

ABSTRACT This paper analyzes the main arguments concerning credibility theory for monetary authority from the mainstream literature. In this sense, the origin of the debate entitled rules versus discretion is examined and the advances in literature from the central bank independence proposal. The findings denote that the problem of the inflationary bias for conduction of monetary policy is a result of a set of ad hoc hypotheses used by the literature. Thus, the developments in the literature concerning the credibility from inflationary bias represent a particular case for monetary theory.