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Monetary Policy, Expectations and Commitment

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Author Info
George W. Evans () (University of Oregon Economics Department)
Seppo Honkapohja (University of Cambridge)

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Abstract

This is a revised and shortened version of Working Paper 2002-11. Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they lead to an RE equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private expectations performs particularly well on both counts.

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File URL: http://economics.uoregon.edu/papers/UO-2005-11_Evans_Commitment.pdf
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Publisher Info
Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2005-11.

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Length: 22
Date of creation: 27 May 2002
Date of revision: 06 Apr 2005
Handle: RePEc:ore:uoecwp:2005-11

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Related research
Keywords: Commitment; interest rate setting; adaptive learning; stability; determinacy;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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