Monetary Policy, Expectations and Commitment
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 a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts. Copyright The editors of the "Scandinavian Journal of Economics", 2006 .
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Volume (Year): 108 (2006)
Issue (Month): 1 (03)
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