Sustainable Monetary Policy and Expectations
Infinitely repeated games have been used to argue that reputation can substitute for commitment in monetary policymaking. A drawback of this approach is that it implies multiple equilibria. I argue that nominal asset prices can be used as an equilibrium selection mechanism. First, I introduce real and nominal asset trading in a way that preserves the full equilibrium set. I then analyze the subset of sustainable policies compatible with a given asset price schedule. I show that the best sustainable monetary policy is implemented if and only if the short term nominal bond is priced at a certain value at date t=0. Hence, if the monetary authority is a price-setter in the short term nominal bond market at date t=0, it can effectively coordinate expectations on the best sustainable policy. However, if the monetary authority can set nominal asset prices at all dates, then the equilibrium set collapses to the subset of one-period equilibria
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" 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 search for a similarly titled item that would be available.
|Date of creation:||03 Dec 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed006:183. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.