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Federal Reserve Bank of San Francisco
Working Paper Series
Timeless perspective policymaking: When is discretion superior?
Richard Dennis
Abstract

In this paper I show that discretionary policymaking can be superior to timeless perspective policymaking and identify model features that make this outcome more likely. Developing a measure of conditional loss that treats the auxiliary state variables that characterize the timeless perspective equilibrium appropriately, I use a New Keynesian DSGE model to show that discretion can dominate timeless perspective policymaking when the Phillips curve is relatively flat, due, perhaps, to firm-specific capital (or labor) and/or Kimball (1995) aggregation in combination with nominal price rigidity. These results suggest that studies applying the timeless perspective might also usefully compare its performance to discretion, paying careful attention to how policy performance is evaluated.


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Richard Dennis, Timeless perspective policymaking: When is discretion superior?, Federal Reserve Bank of San Francisco, Working Paper Series 2008-21, 2008.
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Keywords: Monetary policy
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