Establishing a Reputation for Dependability by Means of Inflation Targets
AbstractThis paper develops a simple intertemporal model of inflation targets within a framework in which the public is uncertain about the dependability of policymakers, and in which policymakers do not perfectly control inflation. The framework is used to evaluate the effects of various parameters like the rate of time preference, initial reputation, and transparency (or precision of inflation control) on planned inflation, announced targets and the evolution of reputation and of inflationary expectations. The paper also shows that, when allowed to choose the precision of inflation control, more dependable policymakers will often choose relatively more precise control procedures. Implications for the type of inflation stabilization (cold turkey or gradual) chosen by dependable policymakers are also derived. Copyright Springer-Verlag Berlin Heidelberg 2000
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1999-99.
Date of creation: 1999
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Inflation; monetary policy;
Other versions of this item:
- Alex Cukierman, 2000. "Establishing a reputation for dependability by means of inflation targets," Economics of Governance, Springer, vol. 1(1), pages 53-76, 03.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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