Dynamic inconsistency and monetary policy management

Georgiana Balaban and Denis Vîntu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the importance of the dynamic inconsistency of monetary policy. The paper is organized as follows: in the first part the concept of dynamic inconsistency is explained; the next sections analyse the the rules versus discretion dilemma and some solutions to counteract the dynamic inconsistency of monetary policy - delegate monetary policy to an independent and conservative central banker; offering to the central banker a performance contract, in which his salary is directly linked to the performance of some important macroeconomic variables such as GDP and inflation rate; inflation targeting strategy. The last section briefly presents the management of monetary policy in Romania after adoption of inflation targeting strategy.

Keywords: Dynamic inconsistency; rules; discretion; monetary policy management; inflation targeting (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2010-06-23, Revised 2010-05-17
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Published in Business Transformation through Innovation and Knowledge Management: An Academic Perspective 14th IBIMA Conference (2010): pp. 1681-1691

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:56042

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