ABSTRACT
Goodfriend (2007, p. 47) describes monetary policy as being in a state of disarray in 1970s. The high inflation rates recorded throughout that decade were a testimony of the prevailing pessimism of central banks, as to whether or not these institutions could effectively control inflation. Price stability was, at best, a remote prospect and, at worst, a lost paradise. So was credibility, both in the eyes of central bankers and the public. Blinder (2000, p. 1422) once stated that ‘a central bank is credible if people believe it will do what it says’. Likewise, Gomme (2006) defined credibility as what ‘concerns people’s beliefs about what policymakers will do in the future’. These rather instinctive definitions conceal a set of rather different conceptions of credibility over the last few decades. We are interested hereafter in the historical evolution of the credibility mantra from the early 1970s up to the inception of the New Monetary Consensus in the 1990s.
