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Dynamic commitment and imperfect policy rules

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  • Joseph G. Haubrich
  • Joseph A. Ritter

Abstract

An examination of the dynamics of commitment, showing that because the decision regarding rules versus discretion occurs in real time, opting for discretion is often the better choice, since it leaves open the possibility of adopting rules later on.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9601.

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Date of creation: 1996
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Handle: RePEc:fip:fedcwp:9601

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Keywords: Monetary policy;

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References

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  1. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
  2. Robert P. Flood & Peter Isard, 1988. "Monetary Policy Strategies," NBER Working Papers 2770, National Bureau of Economic Research, Inc.
  3. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-11, May.
  4. Lars E.O. Svensson, 1995. "Optimal Inflation Targets, `Conservative' Central Banks, and Linear Inflation Contracts," NBER Working Papers 5251, National Bureau of Economic Research, Inc.
  5. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  6. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  7. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-20, December.
  8. Alesina, Alberto, 1988. "Alternative monetary regimes : A review essay," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 175-183, January.
  9. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
  10. Robert P. Flood & Peter M. Garber, 1980. "Gold Monetization and Gold Discipline," NBER Working Papers 0544, National Bureau of Economic Research, Inc.
  11. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  12. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
  14. 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.
  15. Roberds, William, 1987. "Models of Policy under Stochastic Replanning," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 731-55, October.
  16. 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.
  17. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  18. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
  19. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  20. Robert P. Flood & Peter Isard, 1989. "Monetary Policy Strategies," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 612-632, September.
  21. Lockwood, Ben & Philippopoulos, Apostolis, 1994. "Insider Power, Unemployment Dynamics and Multiple Inflation Equilibria," Economica, London School of Economics and Political Science, vol. 61(241), pages 59-77, February.
  22. Joseph G. Haubrich & Joseph A. Ritter, 1992. "Commitment as irreversible investment," Working Paper 9217, Federal Reserve Bank of Cleveland.
  23. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
  24. Lambson, Val Eugene, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 125-42, January.
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Cited by:
  1. Joseph A. Ritter & Joseph H. Haubrich, 1996. "Commitment as investment under uncertainty," Working Papers 1995-004, Federal Reserve Bank of St. Louis.

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