Delegation, Time Inconsistency and Sustainable Equilibrium

Henrique Basso

No 2008:15, Working Paper Series from Uppsala University, Department of Economics

Abstract: This paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government's strategy. The method of Chari and Kehoe (1990) is applied to characterize the entire set of sustainable outcomes. Countering McCallum's (1995) second fallacy, delegation is able to eliminate the time inconsistency problem, with the commitment policy being sustained under discretion for any intertemporal discount rate.

Keywords: Central Bank; Monetary Policy; Institutional Design (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-10-31
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Delegation, time inconsistency and sustainable equilibrium (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:uunewp:2008_015

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