In this paper we solve for the optimal (Stickler) policy in a model of credibility and monetary policy developed by Cuckierman and Meltzer (1986). Unlike the (Nash) solution provided by Cuckierman and Meltzer the dynamic optimisation problem facing the monetary authority in this case is not a linear quadratic form and certainly equivalence does not apply. The learning behaviour of the private sector (regarding the policy maker's preferences) becomes intimately linked with the choice of the optimal policy and cannot be separated as in the certainty equivalent case. Once the dual effect of the optimal Stackelberg policy is recognised the monetary authority has an additional channel of influence to consider beyond that taken into policy rules. Unlike Nash behaviour the Stackelberg solution implies no inflationary bias but it lacks credibility. The learning behaviour of the private sector does not sufficiently inhibit the incentive of the monetary authority to cheat in this model despite the fact that this learning is explicitly recognised in the Stackelberg solution.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.