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Strategic Discipline in Monetary Policy with Private Information: Optimal Targeting Horizons

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  • Garfinkel, Michelle R
  • Oh, Seonghwan

Abstract

This paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in pol icy when the monetary authority has some private information. By limitin g the degree of flexibility permitted in policy, this procedure mitiga tes the credibility problem. As the length of the targeting horizon decreases, the severity of the credibility problem falls but at the expense of weakening the monetary authority's ability to pursue its stabilization goals. Based on model simulations, the analysis studi es the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy. Copyright 1993 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 83 (1993)
Issue (Month): 1 (March)
Pages: 99-117

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Handle: RePEc:aea:aecrev:v:83:y:1993:i:1:p:99-117

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Cited by:
  1. Garfinkel, Michelle R. & Oh, Seonghwan, 1995. "When and how much to talk credibility and flexibility in monetary policy with private information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 35(2), pages 341-357, April.
  2. Edward Kutsoati & Sharun Mukand, 2004. "Expectations and the Central Banker: Making Decisions the Market Expects to See? [revised]," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0418, Department of Economics, Tufts University.
  3. Philip Arestis & Luiz Fernando de Paula & Fernando Ferrari-Filho, 2006. "Inflation Targeting In Emerging Countries: The Case Of Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 42, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  4. Cukierman, A., 1996. "Targeting Monetary Aggregates and Inflation in Europe," Papers, Tel Aviv 37-96, Tel Aviv.
  5. Gersbach, Hans & Hahn, Volker, 2006. "Signaling And Commitment: Monetary Versus Inflation Targeting," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 10(05), pages 595-624, November.
  6. T. Christopher Canavan, 1995. "Can Ignorance Make Central Banks Behave?," Boston College Working Papers in Economics, Boston College Department of Economics 291., Boston College Department of Economics.
  7. Ugo Panizza, 1997. "Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets," Open Economies Review, Springer, Springer, vol. 8(1), pages 5-29, January.
  8. Herrendorf, Berthold, 1998. "Inflation Targeting as a Way of Precommitment," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 431-48, July.
  9. Issing, Otmar & Wieland, Volker, 2012. "Monetary theory and monetary policy: Reflections on the development over the last 150 years," IMFS Working Paper Series 67, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.

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