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Informational Accuracy and the Optimal Monetary Regime

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Author Info
David Demery
Nigel W. Duck ()
Abstract

King (1997) develops a framework for assessing four monetary regimes: an optimal state-contingent rule; a non-contingent rule; pure discretion; and a Rogoffian conservative central banker. Using this framework we show (a) that King is wrong to claim that it implies that an optimally-conservative central banker always dominates a fixed-rule monetary regime; (b) that if the private sector has a signal of the shock to which monetary policy responds - the accuracy of which is exogenously fixed - then either the optimal state-contingent rule or the optimally-conservative central bank can dominate; and (c) that if the private sector optimally chooses the accuracy of its signal then any regime can dominate.

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Publisher Info
Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 05/571.

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Length: 19 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:bri:uobdis:05/571

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Related research
Keywords: Monetary policy; expectations; Rogoffian central banker.;

Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November. [Downloadable!] (restricted)
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  2. Pischke, Jorn-Steffen, 1995. "Individual Income, Incomplete Information, and Aggregate Consumption," Econometrica, Econometric Society, vol. 63(4), pages 805-40, July. [Downloadable!] (restricted)
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  3. 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)
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  4. King, Mervyn, 1997. "Changes in UK monetary policy: Rules and discretion in practice," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 81-97, June. [Downloadable!] (restricted)
  5. Laurence Ball & N Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Economics Working Paper Archive 491, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  6. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June. [Downloadable!] (restricted)
  7. 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)
  8. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February. [Downloadable!] (restricted)
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