Discretionary Policy and Multiple Equilibria in a New Keynesian Model
Volker Hahn ()
Additional contact information
Volker Hahn: Department of Economics, University of Konstanz, Germany
No 2014-14, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz
Abstract:
Focusing on linear-quadratic models with rational expectations, this paper extends the concept of discretionary equilibrium by allowing for linear non- Markovian strategies of the policy-maker and the other agents in the economy. Applying this concept to the standard New Keynesian framework, we show that a multitude of equilibria arise. Some equilibria have favorable consequences for welfare, resulting in outcomes superior even to those achieved under timelessperspective commitment. Compared to traditional approaches to modeling credibility through trigger strategies, our approach has the desirable implication that small mistakes of the policy-maker have only small consequences for his reputation. Finally, we show that our equilibrium concept can provide an alternative explanation for the high degree of inflation persistence found in the data.
Keywords: New Keynesian model; multiple equilibria; discretionary equilibrium; inflation persistence; reputation. (search for similar items in EconPapers)
JEL-codes: C61 E31 E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-08-07
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_14-Hahn_2014.pdf (application/pdf)
Related works:
Journal Article: Discretionary policy and multiple equilibria in a new Keynesian model (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:knz:dpteco:1414
Ordering information: This working paper can be ordered from
https://www.wiwi.uni-konstanz.de/en
Access Statistics for this paper
More papers in Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz Contact information at EDIRC.
Bibliographic data for series maintained by Office Ursprung ( this e-mail address is bad, please contact ).