Monetary Policy, Expectations and Commitment

George William Evans () and Seppo Mikko Sakari Honkapohja ()

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest rate reaction functions and instrument rules have been proposed to implement or approxmiate commitment policy. We assess these optimal reaction functions and instrument rules in terms of whether they lead to an RE equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private expectations performs well on both counts.

Keywords: Commitment; interest rate setting; adaptive learning; stability; determinacy (search for similar items in EconPapers)
JEL-codes: E52 E31 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2002-05-27
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Related works:
Working Paper: Monetary Policy, Expectations and Commitment (2002)
Working Paper: Monetary Policy, Expectations and Commitment (2005)
Working Paper: Monetary policy; expectations and commitment (2002)
Journal Article: Monetary Policy, Expectations and Commitment (2006)
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