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Strategic Discipline in Monetary Policy With Private Information: Optimal Targeting Periods

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Author Info

  • Michelle R. Garfinkel

    (Federal Reserve Bank of St. Louis)

  • Seonghwan Oh

    (UCLA)

Abstract

This paper analyzes the optimal choice of the length of time over which the monetary authority targets money growth, in a setting where the monetary authority’s lack of credibility potentially gives rise to an inflationary bias. When the monetary authority has some private information-e.g. a private forecast-that obscures the relevance of reputational considerations and the effectiveness of legislation to enforce the efficient policy, the targeting procedure serves as a device to diminish the inflationary bias while providing the monetary authority limited flexibility to react to its private information. The analysis strengthens the monetarist proposition that the monetary authority should follow a strict rule. Even when the monetary authority has a fairly accurate forecasting technology, the optimal targeting period can be very short, implying that limited or no flexibility in monetary policy would be optimal.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 584.

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Date of creation: 01 Jan 1990
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Handle: RePEc:cla:uclawp:584

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Web page: http://www.econ.ucla.edu/

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  1. Robert P. Flood & Peter Isard, 1989. "Monetary Policy Strategies," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 612-632, September.
  2. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December.
  3. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  4. Hillier, Brian & Malcomson, James M, 1984. "Dynamic Inconsistency, Rational Expectations, and Optimal Government Policy," Econometrica, Econometric Society, vol. 52(6), pages 1437-51, November.
  5. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  6. Robert P. Flood & Peter Isard, 1988. "Monetary Policy Strategies," NBER Working Papers 2770, National Bureau of Economic Research, Inc.
  7. Kenneth Rogoff, 1987. "Reputational Constraints on Monetary Policy," NBER Working Papers 1986, National Bureau of Economic Research, Inc.
  8. 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.
  9. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  10. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  11. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  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.
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Cited by:
  1. Garfinkel, Michelle R. & Oh, Seonghwan, 1995. "When and how much to talk credibility and flexibility in monetary policy with private information," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 341-357, April.
  2. Georgios E. Chortareas & Stephen M. Miller, 2000. "Optimal Central Banker Contracts and Common Agency," Working papers 2000-03, University of Connecticut, Department of Economics, revised Jun 2002.
  3. Georgios E. Chortareas & Stephen M. Miller, 2002. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Working papers 2002-29, University of Connecticut, Department of Economics.
  4. Georgios E. Chortareas & Stephen M. Miller, 2003. "Monetary Policy Delegation, Contract Costs and Contract Targets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 101-112, January.
  5. Piga, Gustavo, 1998. "In Search of an Independent Province for the Treasuries: How Should Public Debt Be Managed?," Journal of Economics and Business, Elsevier, vol. 50(3), pages 257-275, May.

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