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State-contingent Inflation Contracts and Output Persistence

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  • Lockwood, Ben

Abstract

This paper shows that the government can achieve its precommitment outcome in monetary policy when output follows an autoregressive process, by offering the central banker a linear inflation contract, and where the parameters of the contract depend on lagged output. This note therefore offers an extension of the recent results of Walsh to the case of persistence in real economic variables such as output or unemployment

Suggested Citation

  • Lockwood, Ben, 1996. "State-contingent Inflation Contracts and Output Persistence," CEPR Discussion Papers 1348, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1348
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    Keywords

    Inflation Contracts; Monetary Policy; Output Persistence;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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