Optimal Time Consistent Monetary Policy
AbstractWe discuss the issue of time consistency of monetary policy. We develop a simple and intuitive procedure to derive analytically the unconditionally optimal (UO) policy in a general linear-quadratic set-up, a perspective stressed by Taylor (1979) and Whiteman (1986). We compare the UO perspective on optimal monetary policy with alternative approaches. We use our approach in simple backward- and forward-looking models and argue that the UO perspective is worthy of renewed interest.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200606.
Date of creation: 15 Jun 2006
Date of revision: 15 Jan 2007
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Time consistency; unconditional expectation; timeless perspective; optimal policy.;
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-24 (All new papers)
- NEP-CBA-2006-06-24 (Central Banking)
- NEP-MAC-2006-06-24 (Macroeconomics)
- NEP-MON-2006-06-24 (Monetary Economics)
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