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The Effect of Discounting on Policy Choices in Inflation Targeting Regimes

  • SGB Henry
  • Mathan Satchi
  • David Vines

This article assesses the implications of discounting on a result derived by Bean (1998): that in a model of monetary policy where policy acts with a lag, the outcomes of monetary policy are very similar for a wide range of preferences of the monetary authority with respect to inflation and output stability. We show that when the authority discounts the future, outcomes become more sensitive to its preferences, and that it is important to take the discount rate into account when examining the question of how the authority's remit should be specified. Copyright 2006 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 508 (01)
Pages: 266-282

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:266-282
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  18. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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