More on the time consistency of monetary policy
We introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers. We show that in this environment monetary policy is still time inconsistent, but the nature of the inconsistency is very different from the standard result...
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| Formato: | JOUR |
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| Acceso en línea: | http://hdl.handle.net/20.500.12110/paper_03043932_v41_n2_p333_Nicolini |
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| Sumario: | We introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers. We show that in this environment monetary policy is still time inconsistent, but the nature of the inconsistency is very different from the standard result found in the literature. In particular, we find that the government may find optimal to deviate by choosing inflation rates lower than expected. By making a brief review of the monetary literature, we argue that the model of this paper is more attractive than the ones proposed before to study the time consistency of optimal monetary policy. |
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