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Should central bankers discount the future? A note

  • Paez-Farrell, Juan

Optimal monetary policy under discretion is analysed in a New Keynesian model with rule of thumb pricing. The paper finds that social welfare increases if the policy maker does not discount the future. The welfare improvement rises with the extent of intrinsic inflation persistence.

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File URL: http://www.sciencedirect.com/science/article/pii/S016517651100320X
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 114 (2012)
Issue (Month): 1 ()
Pages: 20-22

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Handle: RePEc:eee:ecolet:v:114:y:2012:i:1:p:20-22
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Jeffrey C. Fuhrer, 2005. "Intrinsic and inherited inflation persistence," Working Papers 05-8, Federal Reserve Bank of Boston.
  2. Stephan Sauer, 2010. "Discretion Rather Than Rules? When Is Discretionary Policymaking Better Than the Timeless Perspective?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(2), pages 1-29, June.
  3. Amato, Jeffery D. & Laubach, Thomas, 2003. "Rule-of-thumb behaviour and monetary policy," European Economic Review, Elsevier, vol. 47(5), pages 791-831, October.
  4. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  5. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-316.
  6. Gregory Erin Givens, 2009. "Estimating Central Bank Preferences under Commitment and Discretion," Working Papers 200905, Middle Tennessee State University, Department of Economics and Finance.
  7. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  8. Tatiana Kirsanova & Stephanus le Roux, 2011. "Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions," Discussion Papers 1108, Exeter University, Department of Economics.
  9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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