1---
 2meta: 
 3  date: false
 4  reading_time: false
 5title: "Commitment - Definition and Meaning"
 6date: 2023-10-05
 7description: "An in-depth analysis of the economic term 'commitment,' exploring its definition, historical context, and implications in different economic frameworks."
 8tags: ["economics", "commitment", "monetary policy", "fiscal policy", "credibility"]
 9---
10
11## Background
12
13In economics, commitment, often referred to as pre-commitment, is a crucial concept wherein a government or central banker makes explicit promises regarding future monetary or fiscal policies. The primary objective is to anchor expectations and enhance policy credibility by ensuring that policies will either remain unchanged or follow a specifically outlined trajectory in case of adjustments.
14
15## Historical Context
16
17The idea of commitment gained prominence in the late 20th century, particularly in the context of central banks attempting to control inflation. Understanding the importance of credibility and forward guidance in monetary policy arose from lessons learned during periods of high inflation and economic instability.
18
19## Definitions and Concepts
20
21### Commitment
22
23A promise by a government or central banker about future policies. Commitment, sometimes called pre-commitment, ensures that monetary or fiscal policies will not be changed, or that if policy changes are necessary, they will take specified forms. However, the credibility of these commitments can be questioned if future economic changes create incentives for the government to deviate from their promises.
24
25## Major Analytical Frameworks
26
27### Classical Economics
28
29- Classical economists emphasize the importance of a hands-off approach. They might argue that less frequent policy commitments are necessary to maintain natural economic adjustments.
30
31### Neoclassical Economics
32
33- Neoclassical frameworks focus on rational expectations and market efficiency. Commitment measures serve as signals to rational agents, who adjust their behavior based on those expectations.
34
35### Keynesian Economic
36
37- Keynesians advocate for active fiscal policies. Commitment assures stakeholders that counter-cyclical measures will be undertaken to stabilize the economy.
38
39### Marxian Economics
40
41- Commitment from a Marxian perspective may be seen critically, as it can represent the state's role in perpetuating class structures or ensuring capital's dominance.
42
43### Institutional Economics
44
45- Institutions play a huge role in maintaining credibility. Strong institutional frameworks are viewed as crucial for effective commitment and enforcement.
46
47### Behavioral Economics
48
49- Behavioral economists consider how biases and heuristics might affect the perception and success of policy commitments. They examine whether people believe and act on government promises.
50
51### Post-Keynesian Economics
52
53- Commitment in the Post-Keynesian view may deal with ensuring long-term employment and growth policies. They emphasize sustained government involvement.
54
55### Austrian Economics
56
57- Austrians generally oppose significant future commitments by the government, advocating for minimal intervention to allow the market natural flexibility.
58
59### Development Economics
60
61- In developing economies, commitment promises can attract foreign investment and ensure stable economic development policies.
62
63### Monetarism
64
65- Monetarists, like those following Milton Friedman, emphasize the importance of committed monetary growth rules to control inflation.
66
67## Comparative Analysis
68
69### Example Analysis: Inflation Targeting
70
71Countries adopting inflation targeting often make a strong commitment to maintain inflation within a certain range. This requires transparent communication and consistent policy measures to ensure adherence and maintain credibility. Examining different countries and central banks illustrates varied success, often tied to the perceived credibility of their commitments.
72
73## Case Studies
74
75### Case Study 1: The European Central Bank
76
77The ECB's forward guidance and commitment to specific policies like asset purchase programs highlight how commitments are communicated and perceived across the Eurozone economies.
78
79### Case Study 2: The Federal Reserve
80
81The Fed's commitment to low interest rates following the 2008 financial crisis and during the COVID-19 pandemic serves as a modern example of how commitments are used to stabilize markets.
82
83## Suggested Books for Further Studies
84
851. "The Elusive Quest for Growth" by William Easterly
862. "Central Banking in Theory and Practice" by Alan S. Blinder
873. "Inflation Targeting: Lessons from the International Experience" by Ben S. Bernanke, Thomas Laubach, Frederic S. Mishkin, and Adam S. Posen
88
89## Related Terms with Definitions
90
91- **Credibility**: Believability and trustworthiness of a government or central bank regarding adhering to its policy commitments.
92- **Forward Guidance**: A communication strategy used by central banks to influence expectations about future monetary policy directions.
93- **Fiscal Policy**: Government spending and tax policies used to influence economic conditions.
94- **Monetary Policy**: Measures undertaken by a central bank to manage money supply and interest rates to achieve macroeconomic objectives like controlling inflation.