Central bank reputation in a forward-looking model

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Central bank reputation in a forward-looking model

Author Info

Loisel, Olivier

Additional information is available for the following registered author(s):

Olivier Loisel

Abstract

This paper examines whether reputation concerns can induce the central bank to implement the time-inconsistent optimal monetary policy in the standard New Keynesian model. Interestingly, the forward-looking nature of this model enables us to account for the coordination of the private agents on the punishment length of their trigger strategy. Our results suggest that both the inflation bias and the stabilization bias can be overcome by a reputation-concerned central bank for the calibrations used in the literature. These results enable us to endogenize Woodford's timeless perspective and tend to weaken the case for recent monetary policy delegation proposals.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 11 (November)
Pages: 3718-3742
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Handle: RePEc:eee:dyncon:v:32:y:2008:i:11:p:3718-3742

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Paper
- Loisel, O., 2005. "Central Bank Reputation in a Forward-Looking Model," Documents de Travail 127, Banque de France. [Downloadable!]

References listed on IDEAS
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Klaus Adam & Roberto M. Billi, 2004. "Optimal monetary policy under discretion with a zero bound on nominal interest rates," Working Paper Series 380, European Central Bank. [Downloadable!]
Other versions:
- Adam, Klaus & Billi, Roberto M, 2004. "Optimal Monetary Policy Under Discretion with a Zero Bound on Nominal Interest Rates," CEPR Discussion Papers 4585, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
Other versions:
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The Science of Monetary Policy: A New Keynesian Perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999. [Downloadable!]
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Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
Bennett T. McCallum & Edward Nelson, 2000. "Timeless Perspectives vs. Discretionary Monetary Policy In Forward-Looking Models," NBER Working Papers 7915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- McCallum, Bennett T & Nelson, Edward, 2001. "Timeless Perspective Vs Discretionary Monetary Policy in Forward-Looking Models," CEPR Discussion Papers 2752, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Bennett T. McCallum & Edward Nelson, 2004. "Timeless perspective vs. discretionary monetary policy in forward-looking models," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 43-56. [Downloadable!]
Walsh, Carl E., 2005. "Endogenous objectives and the evaluation of targeting rules for monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 889-911, July. [Downloadable!] (restricted)
Blake, Andrew P., 2002. "A 'Timeless Perspective' on Optimality in Forward-Looking Rational Expectations Models," Royal Economic Society Annual Conference 2002 30, Royal Economic Society. [Downloadable!]
Other versions:
- Andrew P. Blake, 2001. "A `Timeless Perspective' on Optimality in Forward-Looking Rational Expectations Models," NIESR Discussion Papers 188, National Institute of Economic and Social Research. [Downloadable!]
Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Adam, Klaus & Billi, Roberto M., 2006. "Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1877-1905, October. [Downloadable!] (restricted)
Other versions:
- Klaus Adam & Roberto M. Billi, 2004. "Optimal monetary policy under commitment with a zero bound on nominal interest rates," Working Paper Series 377, European Central Bank. [Downloadable!]
- Adam, Klaus & Billi, Roberto M, 2003. "Optimal Monetary Policy Under Commitment with a Zero Bound on Nominal Interest Rates," CEPR Discussion Papers 4111, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Roberto M. Billi & Klaus Adam, 2004. "Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates," Computing in Economics and Finance 2004 67, Society for Computational Economics. [Downloadable!]
- Klaus Adam & Roberto M. Billi, 2005. "Optimal monetary policy under commitment with a zero bound on nominal interest rates," Research Working Paper RWP 05-07, Federal Reserve Bank of Kansas City. [Downloadable!]
- Klaus Adam & Roberto M. Billi, 2004. "Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates," CFS Working Paper Series 2004/13, Center for Financial Studies. [Downloadable!]
Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January. [Downloadable!] (restricted)
Kenneth Rogoff, 1987. "Reputational Constraints on Monetary Policy," NBER Working Papers 1986, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
Walsh, Carl E, 2000. "Market Discipline and Monetary Policy," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 249-71, April.

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