How severe is the time-inconsistency problem in monetary policy?

Albanesi, Stefania; Chari, V. V.; Christiano, Lawrence J.

doi:10.21034/qr.2732

Journal Article

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.

https://doi.org/10.21034/qr.2732