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The Time Inconsistency of Monetary Policy with Inflation Persistence

  • Richard Mash
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    In a monetary policy model incorporating partial persistence in inflation it is shown that inflation bias is reduced and the response to shocks improved if the policy maker has a discount rate lower than its true social value. Thus a patient central banker is shown to be a third mechanism for offsetting time inconsistency problems in addition to Rogoff`s conservative central banker and the principal-agent approach of Walsh. The paper also analyses outcomes under the latter regimes and the optimal rule, finding important differences from the results of earlier literature that excludes inflation persistence.

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper015.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 15.

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    Date of creation: 01 Jul 2000
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    Handle: RePEc:oxf:wpaper:15
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    Web page: http://www.economics.ox.ac.uk/
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    8. Lockwood, Ben, 1997. "State-Contingent Inflation Contracts and Unemployment Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 286-99, August.
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    10. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
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    20. repec:ner:tilbur:urn:nbn:nl:ui:12-82768 is not listed on IDEAS
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