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The Time Consistency of Optimal Monetary Policy with Heterogeneous Agents

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  • Stefania Albanesi

    (Bocconi University)

Abstract

This paper studies the structure and time consistency of optimal monetary policy from a public finance perspective in an economy where agents differ in preference for liquidity and holdings of nominal assets. I find that the presence of distributional effects breaks the link between time consistency and high inflation, which characterizes representative agent models. For a large class of economies, optimal monetary policy is time consistent. I relate these findings to key historical episodes of inflation and deflation.

Suggested Citation

  • Stefania Albanesi, 2002. "The Time Consistency of Optimal Monetary Policy with Heterogeneous Agents," Macroeconomics 0201003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0201003
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 31 ; figures: included. 31 pages PDF format
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    1. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.

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    More about this item

    Keywords

    Inflation Distribution Heterogeneity;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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