Final answer:
The main determinant of how quickly expected inflation adjusts to changes in monetary policy is the credibility of the central bank.
Step-by-step explanation:
The main determinant of how quickly expected inflation adjusts to changes in monetary policy is the credibility of the central bank. When the central bank has a high level of credibility, it can influence inflation expectations more effectively. This means that when the central bank signals a change in monetary policy, people are more likely to believe that inflation will be controlled, leading to quicker adjustments in inflation expectations.
For example, if a central bank has a history of successfully managing inflation, people will have more confidence in their ability to control inflation in the future. This will result in quicker adjustments to inflation expectations when the central bank announces a change in monetary policy.
On the other hand, if the central bank lacks credibility, people may not believe that the central bank can effectively control inflation. In this case, changes in monetary policy will have less impact on inflation expectations, leading to slower adjustments in expected inflation.