Expectations, Credibility, and Time-Consistent Monetary Policy
AbstractThis paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. It suggests that this problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority to build credibility for a disinflationary policy by demonstrating that it will stick to that policy even if it imposes short-run costs on the economy. Starting with these restrictions, the paper derives conditions that guarantee the uniqueness of the model's steady state; monetary policy in this unique steady state involves the constant deflation advocated by Milton Friedman.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 425.
Length: 42 pages
Date of creation: 09 Jul 1999
Date of revision:
Contact details of provider:
Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
Time-consistency; Inflation; Credibility; Expectations;
Other versions of this item:
- Ireland, Peter N., 2000. "Expectations, Credibility, And Time-Consistent Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 448-466, December.
- Peter N. Ireland, 1999. "Expectations, Credibility, and Time-Consistent Monetary Policy," NBER Working Papers 7234, National Bureau of Economic Research, Inc.
- Peter N. Ireland, 1998. "Expectations, credibility, and time-consistent monetary policy," Working Paper 9812, Federal Reserve Bank of Cleveland.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-07-12 (All new papers)
- NEP-DGE-1999-07-12 (Dynamic General Equilibrium)
- NEP-MON-1999-07-12 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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