Optimal Monetary Policy with Overlapping Generations of Policymakers
AbstractIn this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/32.
Date of creation: 01 Feb 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
- NEP-CBA-2010-03-28 (Central Banking)
- NEP-DGE-2010-03-28 (Dynamic General Equilibrium)
- NEP-MAC-2010-03-28 (Macroeconomics)
- NEP-MON-2010-03-28 (Monetary Economics)
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