What Is the Proper Perspective for Monetary Policy Optimality?
In forward-looking models for monetary policy analysis, the conditions for full conditional optimality are not time invariant, and as a consequence imply an incentive each period for the central bank to depart from its previous optimized plan. The conditional "commitment" plan is therefore strategically incoherent. Discretionary optimality does not have this problem, but yields inferior performance. A "timeless perspective" policy rule proposed by Woodford (1999, 2003) is intended to overcome the incoherence and noncredibility of the commitment plan while yielding performance superior to that of discretionary policy behavior; this rule has received much attention. A fourth "fully timeless" alternative differs slightly from the timeless perspective rule; it is unambiguously superior from an unconditional perspective but does not dominate from the conditional perspective. The paper discusses comparisons at some length and briefly considers the sustainability of these policy strategies.
Volume (Year): 23 (2005)
Issue (Month): S1 (October)
|Contact details of provider:|| Postal: |
Web page: http://www.imes.boj.or.jp/Email:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:23:y:2005:i:s1:p:13-24. 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: (Kinken)
If references are entirely missing, you can add them using this form.