How severe is the time-inconsistency problem in monetary policy?
Abstract: This study analyzes two monetary economies, a cash-credit good model and a limited-participation model. In these models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. The study defines and analyzes Markov equilibrium in these economies and shows that there is no time-inconsistency problem for a wide range of parameter values.
Status: Published in Advances in economics and econometrics: Theory and applications> (Vol. 3, 2003, pp. 123-150)
File(s): File format is application/pdf http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=893
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Quarterly Review
Publication Date: 2003