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Monetary Policy, Expectations and Commitment*

George Evans () and Seppo Honkapohja ()

Scandinavian Journal of Economics, 2006, vol. 108, issue 1, 15-38

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 approximate commitment policy. We assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts.

Date: 2006
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https://doi.org/10.1111/j.1467-9442.2006.00437.x

Related works:
Working Paper: Monetary Policy, Expectations and Commitment (2005) Downloads
Working Paper: Monetary Policy, Expectations and Commitment (2004) Downloads
Working Paper: Monetary Policy, Expectations and Commitment (2002) Downloads
Working Paper: Monetary policy, expectations and commitment (2002) Downloads
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