The gains from short-term commitments

Christian Jensen ()

Journal of Macroeconomics, 2013, vol. 35, issue C, 14-23

Abstract: In a standard New-Keynesian sticky-price model, we study how the gains from commitment depend on how far ahead policymakers commit. While the traditional time-inconsistent solution assumes a once-and-for-all commitment to a plan for all future periods, we show that most of the gains can be achieved with commitment streaks lasting 3–4 periods, or 9–12 months. Moreover, we find that continuously committing just one period ahead is sufficient to capture all the gains from commitment, though this is only feasible with inflation-targeting. The adaptability of short-term commitments to changes in our models and understanding of the economy should arguably make these more credible than once-and-for-all commitments.

Keywords: Time-inconsistency; Commitment streaks; Implementation delays (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:35:y:2013:i:c:p:14-23

DOI: 10.1016/j.jmacro.2012.10.006

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