State-Contingent Inflation Contracts and Output Persistence
This note 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 contract, and where the parameters of the contract depend on lagged output. This note therefore offers an extension of recent results of Walsh to the case of persistence in real economic variables such as output or unemployment.
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|Date of creation:||1995|
|Date of revision:|
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