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Timeless perspective vs discretionary policymaking when the degree of inflation persistence is unknown

Author

Listed:
  • Juan Paez-Farrell

    (Dept of Economics, Loughborough University)

Abstract

It is often assumed that monetary policy in forward looking models yields higher welfare, measured in terms of the unconditional loss, when it operates under the timeless perspective than under discretion. This paper consider the robustness of such a result in a New Keynesian model when the degree of intrinsic inflation persistence is misperceived by the policymaker. It finds that for reasonable parameter values discretion can be superior to the timeless perspective. The reason for this stems from the fact that the timeless perspective policy varies more with the degree of inflation persistence than does the discretionary policy.

Suggested Citation

  • Juan Paez-Farrell, 2009. "Timeless perspective vs discretionary policymaking when the degree of inflation persistence is unknown," Discussion Paper Series 2009_14, Department of Economics, Loughborough University, revised Sep 2009.
    • Handle: RePEc:lbo:lbowps:2009_14
    as

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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/tp_discretion_lboro.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    discretion; timeless perspective; inflation persistence; uncertainty;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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