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How severe is the time-inconsistency problem in monetary policy?

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  • Stefania Albanesi
  • V. V. Chari
  • Lawrence J. Christiano

Abstract

This study analyzes two monetary economies, a cash-credit good model and a limited-participation model. In these models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. The study defines and analyzes Markov equilibrium in these economies and shows that there is no time-inconsistency problem for a wide range of parameter values.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (2003)
Issue (Month): Sum ()
Pages: 17-33

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Handle: RePEc:fip:fedmqr:y:2003:i:sum:p:17-33:n:v.27no.3

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Related research

Keywords: Monetary policy ; Inflation (Finance) ; Money supply;

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References

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  1. 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.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Staff Report 227, Federal Reserve Bank of Minneapolis.
  3. Nicolini, Juan Pablo, 1998. "More on the time consistency of monetary policy," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 333-350, April.
  4. Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-10.
  5. Neiss, Katharine S, 1999. "Discretionary Inflation in a General Equilibrium Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 357-74, August.
  6. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November.
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  1. Canadian Macro Study Group

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