EXPECTATIONS, CREDIBILITY, AND TIME-CONSISTENT MONETARY POLICY

Peter Ireland

Macroeconomic Dynamics, 2000, vol. 4, issue 4, 448-466

Abstract: This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. It suggests that this problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority to build credibility for a disinflationary policy by demonstrating that it will stick to that policy even if it imposes short-run costs on the economy. Starting with these restrictions, the paper derives conditions that guarantee the uniqueness of the model's steady state; monetary policy in this unique steady state involves the constant deflation advocated by Milton Friedman.

Date: 2000
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Related works:
Working Paper: Expectations, Credibility, and Time-Consistent Monetary Policy (1999)
Working Paper: Expectations, Credibility, and Time-Consistent Monetary Policy (1999)
Working Paper: Expectations, credibility, and time-consistent monetary policy (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:4:y:2000:i:04:p:448-466_01

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