Managing beliefs about monetary policy under discretion

Elmar Mertens

No 2010-11, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In models of monetary policy, discretionary policymaking often lacks the ability to manage public beliefs, which explains the theoretical appeal of policy rules and commitment strategies. But as shown in this paper, when a policymaker possesses private information, belief management becomes an integral part of optimal discretion policies and improves their performance. ; Solving for optimal policy in a simple New Keynesian model, this paper shows how discretionary losses are reduced when the policymaker has private information. Furthermore, disinflations are pursued more vigorously, when the hidden information problem is larger, even when inflation is partly backward-looking.

Keywords: Monetary; policy (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Managing Beliefs about Monetary Policy under Discretion (2016)
Working Paper: Managing Beliefs about Monetary Policy under Discretion? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2010-11

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