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"Rules Rather Than Discretion" After Twenty Five Years: What Have We Learned? What More Can We Learn?

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Author Info
Peter N. Ireland () (Boston College)

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Abstract

Kydland and Prescott first identified the inflationary bias that results when a central bank does not precommit to a monetary policy rule. Subsequent work, published over the past twenty five years, demonstrates that this inflationary bias can be minimized by appointing central bankers whose preferences or incentives differ systematically from those of society as a whole. Subsequent work also shows that central bankers may optimally choose to maintain their reputations as inflation fighters. The literature to date, however, says remarkably little about how central bankers establish their reputations, or build credibility for their policies, in the first place.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 530.

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Length: 14 pages
Date of creation: 15 Apr 2002
Date of revision:
Handle: RePEc:boc:bocoec:530

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Related research
Keywords: Time-consistency; Inflation; Unemployment;

Find related papers by JEL classification:
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

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References listed on IDEAS
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.:
  1. 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:
  2. 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:
  3. 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)
  4. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. repec:cup:macdyn:v:4:y:2000:i:4:p:448-66 is not listed on IDEAS
  6. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November. [Downloadable!] (restricted)
  7. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  8. Herrendorf, Berthold & Lockwood, Ben, 1997. "Rogoff's "Conservative" Central Banker Restored," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 476-95, November.
    Other versions:
  9. Blinder, Alan S, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring. [Downloadable!] (restricted)
  10. Peter N. Ireland, 1998. "Expectations, credibility, and time-consistent monetary policy," Working Paper 9812, Federal Reserve Bank of Cleveland. [Downloadable!]
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  11. Taylor, John B, 1982. "Establishing Credibility: A Rational Expectations Viewpoint," American Economic Review, American Economic Association, vol. 72(2), pages 81-85, May. [Downloadable!] (restricted)
  12. 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)
  13. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, 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.)

  1. Oliver Volckart, 2007. "Rules, Discretion or Reputation? Monetary Policies and the Efficiency of Financial Markets in Germany, 14th to 16th Centuries," SFB 649 Discussion Papers SFB649DP2007-007, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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