Expectations, Credibility, and Time-Consistent Monetary Policy

Peter Ireland

No 425, Boston College Working Papers in Economics from Boston College Department of Economics

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.

Keywords: Time-consistency; Inflation; Credibility; Expectations (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 (search for similar items in EconPapers)
Pages: 42 pages
Date: 1999-07-09
New Economics Papers: this item is included in nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: EXPECTATIONS, CREDIBILITY, AND TIME-CONSISTENT MONETARY POLICY (2000)
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:boc:bocoec:425

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