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A Graphical Exposition of the Inconsistency of Optimal Monetary Plans


  • Frank G. Steindl


Abstract: The author presents a geometrical framework in which the inability of discretionary policy (consistent policy in the sense of Kydland and Prescott) to be socially optimal is demonstrated. Policy based on a rule results in a higher level of utility. The author extends the model to demonstrate that policy of a Rogoff conservative central banker results in approaching the same equilibrium as that from a monetary rule. Finally, the framework shows that attempts to exploit the Phillips curve result in stagflation.

Suggested Citation

  • Frank G. Steindl, 2006. "A Graphical Exposition of the Inconsistency of Optimal Monetary Plans," The Journal of Economic Education, Taylor & Francis Journals, vol. 37(3), pages 340-347, July.
  • Handle: RePEc:taf:jeduce:v:37:y:2006:i:3:p:340-347
    DOI: 10.3200/JECE.37.3.340-347

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