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Dynamic inconsistency and monetary policy management

Author

Listed:
  • Balaban, Georgiana
  • Vîntu, Denis

Abstract

This paper studies the importance of the dynamic inconsistency of monetary policy. The paper is organized as follows: in the first part the concept of dynamic inconsistency is explained; the next sections analyse the the rules versus discretion dilemma and some solutions to counteract the dynamic inconsistency of monetary policy - delegate monetary policy to an independent and conservative central banker; offering to the central banker a performance contract, in which his salary is directly linked to the performance of some important macroeconomic variables such as GDP and inflation rate; inflation targeting strategy. The last section briefly presents the management of monetary policy in Romania after adoption of inflation targeting strategy.

Suggested Citation

  • Balaban, Georgiana & Vîntu, Denis, 2010. "Dynamic inconsistency and monetary policy management," MPRA Paper 56042, University Library of Munich, Germany, revised 17 May 2010.
    • Handle: RePEc:pra:mprapa:56042
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    File URL: https://mpra.ub.uni-muenchen.de/56042/1/MPRA_paper_56042.pdf
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    More about this item

    Keywords

    Dynamic inconsistency; rules; discretion; monetary policy management; inflation targeting;
    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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