Measuring the Time Inconsistency of US Monetary Policy

Paolo Surico

Economica, 2008, vol. 75, issue 297, 22-38

Abstract: This paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency. In the presence of asymmetric preferences, the monetary authorities generate a systematic inflation bias through the private‐sector expectations of a larger policy response in recessions than in booms. The estimated Fed's implicit target for inflation has declined from the pre‐ to the post‐Volcker regime. The average inflation bias was about 1% before 1979, but this has disappeared over the last two decades, because the preferences on output stabilization were large and asymmetric only in the former period.

Date: 2008
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https://doi.org/10.1111/j.1468-0335.2007.00590.x

Related works:
Working Paper: Measuring the time-inconsistency of US monetary policy (2004)
Working Paper: Measuring the Time-Inconsistency of US Monetary Policy (2004)
Working Paper: Measuring the time-inconsistency of US monetary policy (2003)
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