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Federal Reserve Bank of San Francisco
Working Paper Series
Pre-commitment, the timeless perspective, and policymaking from behind a veil of uncertainty
Richard Dennis
Abstract

Woodford (1999) develops the notion of a "timelessly optimal" pre-commitment policy. This paper uses a simple business cycle model to illustrate this notion. We show that timelessly optimal policies are not unique and that they are not necessarily better than the time-consistent solution. Further, we describe a method for constructing optimal pre-commitment rules in an environment where the policymaker does not know the initial state of the economy. This latter solution is useful for characterizing the benefits policymakers extract through exploiting initial conditions.


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Richard Dennis, Pre-commitment, the timeless perspective, and policymaking from behind a veil of uncertainty, Federal Reserve Bank of San Francisco, Working Paper Series 2001-19, 2001.
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Keywords: Monetary policy ; Business cycles
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