Discretion rather than rules: Equilibrium uniqueness and forward guidance with inconsistent optimal plans

Jeffrey Campbell and Jacob Weber (jake.weber@ny.frb.org)

Review of Economic Dynamics, 2021, vol. 41, 243-254

Abstract: New Keynesian economies with active interest rate rules gain equilibrium determinacy from the central bank's incredible off-equilibrium-path promises (Cochrane, 2011). We suppose instead that the central bank sets interest rate paths and occasionally has the discretion to change them. With empirically-reasonable frequencies of central bank reoptimization, the monetary policy game has a unique Markov-perfect equilibrium wherein forward guidance influences current outcomes without displaying a forward guidance puzzle. (Copyright: Elsevier)

Keywords: Monetary policy; Open mouth operations; Quasi-commitment; Ramsey problem (search for similar items in EconPapers)
JEL-codes: E12 E52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2020.11.005
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Discretion rather than rules: Equilibrium uniqueness and forward guidance with inconsistent optimal plans" (2020)
Working Paper: Discretion Rather than Rules: Equilibrium Uniqueness and Forward Guidance with Inconsistent Optimal Plans (2018)
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:red:issued:20-28

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/
red@elsevier.com

DOI: 10.1016/j.red.2020.11.005

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann (chuichuiche@gmail.com).