Strategic Discipline in Monetary Policy With Private Information: Optimal Targeting Periods
AbstractThis paper analyzes the optimal choice of the length of time over which the monetary authority targets money growth, in a setting where the monetary authorityâs 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.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 584.
Date of creation: 01 Jan 1990
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Web page: http://www.econ.ucla.edu/
Other versions of this item:
- Michelle R. Garfinkel & Seonghwan Oh, 1990. "Strategic discipline in monetary policy with private information: optimal targeting periods," Working Papers 1990-001, Federal Reserve Bank of St. Louis.
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