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Time Inconsistency in a Model with Lags, Persistence, and Overlapping Wage Contracts

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  • Goodhart, Charles A E
  • Huang, Haizhou

Abstract

The two strands in the literature of monetary analysis, namely that there are long lags of monetary policy and the adverse effects of time inconsistency, have not previously been, but need to be, integrated. To achieve such an objective, in this paper, the authors present a model of a Central Bank game with the realistic features of both lags and persistence effects naturally imbedded in overlapping wage contracts. In their more realistic model, the inflationary bias is much smaller, inflation is less volatile, and the optimal adjustment of monetary instrument needs to be smoother than previously assessed. Copyright 1998 by Royal Economic Society.

Suggested Citation

  • Goodhart, Charles A E & Huang, Haizhou, 1998. "Time Inconsistency in a Model with Lags, Persistence, and Overlapping Wage Contracts," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 378-396, July.
    • Handle: RePEc:oup:oxecpp:v:50:y:1998:i:3:p:378-96
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    Citations

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    Cited by:

    1. Gartner, Manfred, 2000. "Political Macroeconomics: A Survey of Recent Developments," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 527-561, December.
    2. International Monetary Fund, 1999. "United Kingdom: Selected Issues," IMF Staff Country Reports 1999/044, International Monetary Fund.
    3. Heinz-Peter Spahn, 2001. "On the theory of interest rate policy," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 355-380.
    4. James Forder, 2001. "The Theory of Credibility and the Reputation-bias of Policy," Review of Political Economy, Taylor & Francis Journals, vol. 13(1), pages 5-25.
    5. Hossein Samiei & Mr. Jan Kees Martijn, 1999. "Central Bank Independence and the Conduct of Monetary Policy in the United Kingdom," IMF Working Papers 1999/170, International Monetary Fund.
    6. Richard Mash, 2000. "The Time Inconsistency of Monetary Policy with Inflation Persistence," Economics Series Working Papers 15, University of Oxford, Department of Economics.
    7. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank.
    8. Rotondi, Zeno, 2000. "Time consistent monetary policy reconsidered: may we have a deflationary bias too?," Discussion Paper Series In Economics And Econometrics 0004, Economics Division, School of Social Sciences, University of Southampton.
    9. James Forder, 2000. "Could Reputation-Bias be a Bigger Problem than Inflation-Bias?," Economics Series Working Papers 22, University of Oxford, Department of Economics.
    10. J Whittaker, 2001. "The reputational constraint on monetary policy," Working Papers 539849, Lancaster University Management School, Economics Department.
    11. Mash, Richard, 2002. "Monetary Policy with an Endogenous Capital Stock When Inflation Is Persistent," Manchester School, University of Manchester, vol. 70(0), pages 55-86, Supplemen.
    12. Rotondi, Zeno, 2000. "Time consistent monetary policy reconsidered: may we have a deflationary bias too?," Discussion Paper Series In Economics And Econometrics 4, Economics Division, School of Social Sciences, University of Southampton.
    13. Gartner, Manfred, 1999. "The election cycle in the inflation bias: evidence from the G-7 countries," European Journal of Political Economy, Elsevier, vol. 15(4), pages 705-725, November.
    14. Peter Howells, 2009. "Independent Central Banks: Some theoretical and empirical problems?," Working Papers 0908, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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