The Time Consistency of Optimal Monetary Policy with Heterogeneous Agents

Stefania Albanesi
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Stefania Albanesi: Bocconi University

Macroeconomics from EconWPA

Abstract: This paper studies the structure and time consistency of optimal monetary policy from a public finance perspective in an economy where agents differ in preference for liquidity and holdings of nominal assets. I find that the presence of distributional effects breaks the link between time consistency and high inflation, which characterizes representative agent models. For a large class of economies, optimal monetary policy is time consistent. I relate these findings to key historical episodes of inflation and deflation.

Keywords: Inflation; Distribution; Heterogeneity (search for similar items in EconPapers)
JEL-codes: E4 E5 E6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2002-01-10
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 31 ; figures: included. 31 pages PDF format
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0201003

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