Time-consistent Monetary Policy Rules
A monetary policy rule is a function mapping any given output level of the economy to a corresponding rate of inflation. Such a rule is time-consistent if the central bank has no incentive to deviate from it. Within a simple dynamic model combining an output-inflation trade-off with rational private-sector expectations we study existence and properties of time-consistent monetary policy rules. It is shown that such rules exist only if (i) the central bank gives relatively high weight to price stability and relatively low weight to output stabilization and if (ii) the random shocks to the economy are not too strong. If time-consistent monetary policy rules exist, they are generically non-unique.
|Date of creation:||Oct 2001|
|Date of revision:|
|Contact details of provider:|| Postal: London E1 4NS|
Phone: +44 (0) 20 7882 5096
Fax: +44 (0) 20 8983 3580
Web page: http://www.econ.qmul.ac.uk
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:qmw:qmwecw:wp442. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nick Vriend)
If references are entirely missing, you can add them using this form.