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Optimal Continuation versus the Timeless Perspective in Monetary Policy

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  • CHRISTIAN JENSEN
  • BENNETT T. MCCALLUM

Abstract

The timeless-perspective approach suggests that policymakers implement in each period policy actions conforming to a rule that would have been fully optimal to adopt in the distant past. A motivating advantage is that policy henceforth would continue by recommending the same optimality conditions if reconsidered, thereby enhancing credibility. We argue that continuation can alternatively be achieved with better results, on average, in terms of policymakers' objectives, by implementing in each period the time-invariant policy that is optimal from the viewpoint of the contemporary understanding of objectives and constraints, but while ignoring the conditions that happen to prevail at the time. Copyright (c) 2010 The Ohio State University.

Suggested Citation

  • Christian Jensen & Bennett T. Mccallum, 2010. "Optimal Continuation versus the Timeless Perspective in Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1093-1107, September.
    • Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:6:p:1093-1107
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    Cited by:

    1. Carlo Altavilla & Matteo Ciccarelli, 2011. "Monetary Policy Analysis in Real-Time. Vintage combination from a real-time dataset," CSEF Working Papers 274, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Jensen Christian, 2020. "Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-9, January.
    3. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2015. "Ordering Policy Rules with an Unconditional Welfare Measure," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 103-149, January.
    4. Jinill Kim & Sunghyun Kim, 2018. "Conditional Versus Unconditional Utility as Welfare Criterion: Two Examples," Computational Economics, Springer;Society for Computational Economics, vol. 51(3), pages 719-730, March.
    5. Ricardo Nunes & Jinill Kim & Jesper Linde & Davide Debortoli, 2014. "Designing a Simple Loss Function for the Fed: Does the Dual Mandate Make Sense?," 2014 Meeting Papers 1043, Society for Economic Dynamics.
    6. Ida, Daisuke, 2020. "Sectoral inflation persistence and optimal monetary policy," Journal of Macroeconomics, Elsevier, vol. 65(C).
    7. Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2008. "Unconditionally optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 491-500, April.
    8. Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2021. "Unconditionally optimal Ramsey policy," Journal of Macroeconomics, Elsevier, vol. 69(C).
    9. Di Bartolomeo, Giovanni & Di Pietro, Marco & Giannini, Bianca, 2016. "Optimal monetary policy in a New Keynesian model with heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 373-387.
    10. Davide Debortoli & Jinill Kim & Jesper Lindé & Ricardo Nunes, 2019. "Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense?," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2010-2038.
    11. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2006. "Optimal Time Consistent Monetary Policy," CDMA Working Paper Series 200606, Centre for Dynamic Macroeconomic Analysis, revised 15 Jan 2007.
    12. Richard Harrison & Matt Waldron, 2021. "Optimal policy with occasionally binding constraints: piecewise linear solution methods," Bank of England working papers 911, Bank of England.
    13. Jensen, Christian, 2016. "Discretion Rather than Rules? Binding Commitments versus Discretionary Policymaking," MPRA Paper 76838, University Library of Munich, Germany.
    14. Margarita Rubio & Fang Yao, 2020. "Macroprudential Policies in a Low Interest Rate Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1565-1591, September.

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