 Commitment Issues: Does the Fed Have an Inflation Incentive to Commit?Studies in Nonlinear Dynamics & Econometrics, 2024, vol. 28, issue 5, 767-784 Abstract: Long-run results indicate that for price and wage inflation there is little disincentive for discretionary policy when monetary policy is at or near the zero-lower bound. Optimal commitment and discretionary policy are examined in a popular DSGE framework. The monetary authority targets a convex combination of price and wage inflationary gaps around time-varying inflation targets. A joint hypothesis test is derived to determine if the central bank faces an inflationary disincentive for activist policy. Considering price and wage inflation separately, there are significant short-run disincentives to discretionary policy. Discretion and commitment policies are not different for price and wage inflation when nominal interest rates are persistently low. Keywords: optimal monetary policy; timeless perspective policy; discretionary policy; wage and price inflation; Bayesian inference (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bpj:sndecm:v:28:y:2024:i:5:p:767-784:n:1004 Ordering information: This journal article can be ordered from Access Statistics for this article Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.