Expectations, Credibility, and Time-Consistent Monetary Policy

No 7234, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. It suggests that this problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority to build credibility for a disinflationary policy by demonstrating that it will stick to the policy even if it imposes short-run costs on the economy. Starting with these restrictions, the paper derives conditions that guarantee the uniqueness of the model's steady state; monetary policy in this unique steady state involves the constant deflation advocated by Milton Friedman.

JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 1999-07
New Economics Papers: this item is included in nep-dge and nep-mon
Note: ME
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Citations: View citations in EconPapers (3)

Published as Ireland, Peter N., 2000. "Expectations, Credibility, And Time-Consistent Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 448-466, December.

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Related works:
Journal Article: EXPECTATIONS, CREDIBILITY, AND TIME-CONSISTENT MONETARY POLICY (2000)
Working Paper: Expectations, Credibility, and Time-Consistent Monetary Policy (1999)
Working Paper: Expectations, credibility, and time-consistent monetary policy (1998)
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