Long-term Inflation Expectations and Central Bank Credibility

This paper proposes a new measure of central bank credibility. I develop an inflation expectations model that specifies inflation expectations' mean-reverting properties, which is assumed to indicate the level of credibility. Estimating the model with US data, I find that the new measure, in general, shows a similar feature of changes in central bank credibility to existing indicators. However, the index in this paper captures the more fundamental changes in credibility. According to the index, central bank credibility in the recent period is maintained at its lowest level since 2017.