Conservative Monetary Policy Rule and Inflation Mitigation Policies
This paper studies an enforceable conservative monetary policy rule and the welfare implications of inflation mitigation policies. By applying Rogoff's idea of appointing a conservative central banker to Barro and Gordon's framework, we derive the optimal degree of conservatism of society when the policy rule is enforceable in a multi-period set-up. In our work, the exact range of the parameter used to measure the degree of conservatism for the enforceable policy rule is expressed by some important parameters in the model such as the marginal cost of inflation, the slope coefficient in the Phillips curve, and the time discount factor. Using the basic set-up, we re-investigate Fischer and Summers' finding on the welfare effects of some inflation mitigation policies for the case of the reputational equilibrium under the conservative monetary policy rule. [E50]
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Volume (Year): 14 (2000)
Issue (Month): 3 ()
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- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
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- Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
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- Fischer, Stanley & Summers, Lawrence H, 1989. "Should Governments Learn to Live with Inflation?," American Economic Review, American Economic Association, vol. 79(2), pages 382-87, May.
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