What Is the Proper Perspective for Monetary Policy Optimality?

Bennett McCallum

Monetary and Economic Studies, 2005, vol. 23, issue S1, 13-24

Abstract: In forward-looking models for monetary policy analysis, the conditions for full conditional optimality are not time invariant, and as a consequence imply an incentive each period for the central bank to depart from its previous optimized plan. The conditional "commitment" plan is therefore strategically incoherent. Discretionary optimality does not have this problem, but yields inferior performance. A "timeless perspective" policy rule proposed by Woodford (1999, 2003) is intended to overcome the incoherence and noncredibility of the commitment plan while yielding performance superior to that of discretionary policy behavior; this rule has received much attention. A fourth "fully timeless" alternative differs slightly from the timeless perspective rule; it is unambiguously superior from an unconditional perspective but does not dominate from the conditional perspective. The paper discusses comparisons at some length and briefly considers the sustainability of these policy strategies.

JEL-codes: E52 (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.imes.boj.or.jp/research/papers/english/me23-s1-3.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ime:imemes:v:23:y:2005:i:s1:p:13-24

Access Statistics for this article

More articles in Monetary and Economic Studies from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().