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How Conservative Does the Central Banker Have to Be? On the Treatment of Expectations under Discretionary Policymaking

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Author Info
Alfred V. Guender () (University of Canterbury)

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Abstract

This paper explores an issue that arises in the delegation process. The paper shows that a myopic central banker, one who treats expectations as constant in setting discretionary policy, can replicate the behavior of output and inflation under policy from a timeless perspective. For that to happen, society must delegate a price level target or a speed limit policy to a central banker who is more weight-conservative than society.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0704.pdf
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Publisher Info
Paper provided by University of Canterbury, Department of Economics in its series Working Papers in Economics with number 07/04.

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Length: 25 pages
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:cbt:econwp:07/04

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Related research
Keywords: New Keynesian Model; Price Level Targeting; Speed Limit Policy; Conservative Central Banker;

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

This paper has been announced in the following NEP Reports:

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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. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings, Federal Reserve Bank of Kansas City, pages 277-316. [Downloadable!]
  2. Henrik Jensen, 2002. "Targeting Nominal Income Growth or Inflation?," American Economic Review, American Economic Association, vol. 92(4), pages 928-956, September. [Downloadable!]
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  3. Vestin, David, 2000. "Price-level Targeting versus Inflation Targeting in a Forward-looking Model," Working Paper Series 106, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  4. Bennett T. McCallum, 1983. "On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective," NBER Working Papers 0684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. 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!]
    Other versions:
  6. Richard Dennis, 2001. "Optimal policy in rational-expectations models: new solution algorithms," Working Papers in Applied Economic Theory 2001-09, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
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