Why an apparently innocent speech would create such reaction

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Public Pronouncements and Fed Officials. In addition to political and institutional factors, public pronouncements also affect the credibility of the Fed. When Alan Blinder, a Princeton University professor of economics, was appointed vice-chair of the Federal Reserve in 1994, he gave a speech to a group of central bankers and monetary policy specialists. In that speech, he repeated one of the lessons in this chapter: In the long run, the rate of inflation is independent of unemployment and depends only on money growth; in the short run, lower unemployment can raise the inflation rate. Blinder s speech caused an uproar in the financial press. Some commentators attacked him as not being sufficiently vigilant against inflation. Use the idea of credibility to explain why an apparently innocent speech would create such a reaction. (Related to Application 2 on page 339.)

Reference no: EM131130508

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