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Conference Paper
The optimal degree of monetary policy discretion
Working Paper
On the optimality of transparent monetary policy
We analyze the optimal design of monetary rules. We suppose there is an agreed upon social welfare function that depends on the randomly fluctuating state of the economy and that the monetary authority has private information about that state. We suppose the government can constrain the policies of the monetary authority by legislating a rule. In general, well-designed rules trade-off the need to constrain policymakers from the standard time consistency problem arising from the temptation for unexpected inflation with the desire to give them flexibility to react to their private information. ...
Report
The optimal degree of discretion in monetary policy
How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the randomly fluctuating state of the economy. The monetary authority has private information about that state. In the model, well-designed rules trade off society?s desire to give the monetary authority discretion to react to its private information against society?s need to guard against the time inconsistency problem arising from the temptation to stimulate the economy with unexpected inflation. Although this ...
Working Paper
The optimal degree of discretion in monetary policy
How much discretion is it optimal to give the monetary authority in setting its policy? We analyze this mechanism design question in an economy with an agreed-upon social welfare function that depends on the randomly fluctuating state of the economy. The monetary authority has private information about that state. In the model, well-designed rules trade off society's desire to give the monetary authority flexibility to react to its private information against society's need to guard against the standard time inconsistency problem arising from the temptation to stimulate the economy with ...
Working Paper
The optimal degree of discretion in monetary policy
How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the randomly fluctuating state of the economy. The monetary authority has private information about that state. In the model, well-designed rules trade off society's desire to give the monetary authority discretion to react to its private information against society's need to guard against the time inconsistency problem arising from the temptation to stimulate the economy with unexpected inflation. Although this ...