IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

A reputation strategic model of monetary policy in continuous-time

  • Li, Jingyuan
  • Liu, Yongming
  • Tian, Guoqiang

This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6X4M-4V8GB0W-2/2/bc3560b027d43a576bd4bf15ace16c2a
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 4 (December)
Pages: 523-533

as
in new window

Handle: RePEc:eee:jmacro:v:31:y:2009:i:4:p:523-533
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Schattler, Heinz & Sung, Jaeyoung, 1997. "On optimal sharing rules in discrete-and continuous-time principal-agent problems with exponential utility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 551-574.
  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  3. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
  4. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December.
  5. Eduardo Faingold & Yuliy Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous-Time Games," Cowles Foundation Discussion Papers 1624, Cowles Foundation for Research in Economics, Yale University.
  6. 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.
  7. Svensson, L.E.O., 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," Papers 595, Stockholm - International Economic Studies.
  8. Fudenberg, D., 1991. "Maintaining a Reputation when Strategies are Imperfectly Observed," Working papers 589, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Martin Cripps & George J Mailath & Larry Samuelson, 2010. "Imperfect Monitoring and Impermanent Reputations," Levine's Working Paper Archive 618897000000000060, David K. Levine.
  10. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  11. Joseph G. Haubrich & Joseph A. Ritter, 1999. "Committing and reneging: a dynamic model of policy regimes," Working Papers 1999-020, Federal Reserve Bank of St. Louis.
  12. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  13. al-Nowaihi, Ali & Levine, Paul, 1994. "Can reputation resolve the monetary policy credibility problem?," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 355-380, April.
  14. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  15. Haubrich, Joseph G & Ritter, Joseph A, 2000. "Dynamic Commitment and Incomplete Policy Rules," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 766-84, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:31:y:2009:i:4:p:523-533. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.