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Timeless perspective versus discretionary policymaking when the degree of inflation persistence is unknown


  • Paez-Farrell, Juan


One major strand in optimal monetary policy analysis considers the robustness of alternative policies under model uncertainty. Another has focused on the appropriate perspective for optimal monetary policy, namely discretion or the timeless perspective (TP). The paper bridges these two parallel lines of research by assessing the welfare consequences of both policy perspectives in the presence of misperceptions about the degree of intrinsic inflation persistence. Contrary to most standard results, discretion can be the more robust perspective, the reason being that the TP exploits the expectations channel. With misperceptions this leads to large deteriorations in welfare.

Suggested Citation

  • Paez-Farrell, Juan, 2011. "Timeless perspective versus discretionary policymaking when the degree of inflation persistence is unknown," Economic Modelling, Elsevier, vol. 28(6), pages 2432-2438.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2432-2438 DOI: 10.1016/j.econmod.2011.06.017

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    References listed on IDEAS

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    More about this item


    Discretion; Timeless perspective; Inflation persistence; Uncertainty; Parameter misperceptions;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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