Description

When the monetary authority lacks credibility it f aces a larger trade-off between output and inflation. This poses important challenges for the implementa tion and design of an in flation targeting regime and an inflation stabilization process. In this pa per we show how these challenges have determined different implementation phases of an inflation targeting regime in Chile, and how imperfect credibility is consistent with the different feat ures of the disinflationary process followed by Chile during the 90s.