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On two notions of imperfect credibility in optimal monetary policies

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  • Fujiwara, Ippei
  • Kam, Timothy
  • Sunakawa, Takeki

Abstract

We explore how outcomes of optimal monetary policy with loose commitment (Schaumburg and Tambalotti, 2007; Debortoli and Nunes, 2010) with the non-reoptimization probability of α can be interpretable as outcomes of deeper optimal policy under sustainable plans (Chari and Kehoe, 1990) with N-period punishment. In a standard monetary-policy framework, we show that, for any sufficiently high value of α, there exists an integer N such that impulse responses to the cost-push shock under each policy are similar to each other.

Suggested Citation

  • Fujiwara, Ippei & Kam, Timothy & Sunakawa, Takeki, 2019. "On two notions of imperfect credibility in optimal monetary policies," Economics Letters, Elsevier, vol. 174(C), pages 22-25.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:22-25
    DOI: 10.1016/j.econlet.2018.10.010
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    References listed on IDEAS

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    1. Taisuke Nakata, 2018. "Reputation and Liquidity Traps," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 252-268, April.
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    4. Loisel, Olivier, 2008. "Central bank reputation in a forward-looking model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3718-3742, November.
    5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    6. Bodenstein, Martin & Hebden, James & Nunes, Ricardo, 2012. "Imperfect credibility and the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 59(2), pages 135-149.
    7. Schaumburg, Ernst & Tambalotti, Andrea, 2007. "An investigation of the gains from commitment in monetary policy," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 302-324, March.
    8. Debortoli, Davide & Maih, Junior & Nunes, Ricardo, 2014. "Loose Commitment In Medium-Scale Macroeconomic Models: Theory And Applications," Macroeconomic Dynamics, Cambridge University Press, vol. 18(1), pages 175-198, January.
    9. Roberds, William, 1987. "Models of Policy under Stochastic Replanning," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 731-755, October.
    10. Taisuke Nakata, 2018. "Reputation and Liquidity Traps," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 252-268, April.
    11. Debortoli, Davide & Nunes, Ricardo, 2010. "Fiscal policy under loose commitment," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1005-1032, May.
    12. Davide Debortoli & Ricardo Nunes, 2013. "Lack Of Commitment And The Level Of Debt," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1053-1078, October.
    13. Davide Debortoli & Aeimit Lakdawala, 2016. "How Credible Is the Federal Reserve? A Structural Estimation of Policy Re-optimizations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 42-76, July.
    14. Sunakawa, Takeki, 2015. "A quantitative analysis of optimal sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 119-135.
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    Cited by:

    1. Jean-Bernard Chatelain & Kirsten Ralf, 2021. "Imperfect Credibility versus No Credibility of Optimal Monetary Policy," Revue économique, Presses de Sciences-Po, vol. 72(1), pages 43-63.
    2. Chatelain, Jean-Bernard & Ralf, Kirsten, 2021. "Hopf Bifurcation From New-Keynesian Taylor Rule To Ramsey Optimal Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 25(8), pages 2204-2236, December.
    3. Batista, Quentin & Nakata, Taisuke & Sunakawa, Takeki, 2023. "Credible Forward Guidance," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    4. Gino Cateau & Malik Shukayev, 2022. "Limited commitment, endogenous credibility and the challenges of price‐level targeting," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(4), pages 1834-1861, November.

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    More about this item

    Keywords

    Imperfect credibility; Monetary policy; Sustainable policy;
    All these keywords.

    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
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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