IDEAS home Printed from https://ideas.repec.org/p/nsr/niesrd/29.html

Equilibrium monetary policy in a model of inflation and employment

Author

Listed:
  • Andrew P Blake

Abstract

Questions of credibility and precommitment are now at the centre of debate about monetary policy, in the theoretical literature and also amongst those concerned with the design of a workable regime for this country following 'Black Wednesday'. In this paper, as in much of the debate, the crucial problem arises because the monetary authorities have an incentive to renege on their commitment to price stability, as this will result in lower unemployment at least for a spell. Various solutions have been proposed using different varieties of dynamic game theory‐the game being played between the authorities who try to choose the best precommitment strategy and economic agents in general who try to predict what policy, and hence inflation, will actually be. Previous contributions to the debate have made use of policy feedback rules, which the authorities might announce to indicate in advance how policy would respond to inflation or to unemployment. This paper uses instead the concept of 'open loop Nash equilibrium', which requires that the monetary authorities can make a commitment to the entire time path of inflation in the future. Within this framework the analysis is more tractable and the results less counter‐intuitive. The paper demonstrates the value of precommitment. Contact NIESR if copy required

Suggested Citation

  • Andrew P Blake, 1993. "Equilibrium monetary policy in a model of inflation and employment," National Institute of Economic and Social Research (NIESR) Discussion Papers 29, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:29
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nsr:niesrd:29. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Library & Information Manager (email available below). General contact details of provider: https://edirc.repec.org/data/niesruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.