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Optimal Commitment Policy Under Noisy Information

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  • Aoki, Kosuke

Abstract

This Paper studies an advantage of commitment over discretion when a central bank observes only noisy measures of current inflation and output, in the context of an optimizing model with nominal-price stickiness. Under a commitment regime, if current policy turns out to be too expansionary (contractionary) because of the bank’s information problem, subsequent policies should be slightly contractionary (expansionary). By following this approach, the central bank can improve the trade-off between the fluctuations of its goal variables caused by economic shocks and those fluctuations caused by the bank’s response to measurement error.

Suggested Citation

  • Aoki, Kosuke, 2002. "Optimal Commitment Policy Under Noisy Information," CEPR Discussion Papers 3370, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3370
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    References listed on IDEAS

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    More about this item

    Keywords

    commitment; noisy information; optimal monetary policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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