"Rules Rather Than Discretion" After Twenty Five Years: What Have We Learned? What More Can We Learn?

Peter Ireland

No 530, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Kydland and Prescott first identified the inflationary bias that results when a central bank does not precommit to a monetary policy rule. Subsequent work, published over the past twenty five years, demonstrates that this inflationary bias can be minimized by appointing central bankers whose preferences or incentives differ systematically from those of society as a whole. Subsequent work also shows that central bankers may optimally choose to maintain their reputations as inflation fighters. The literature to date, however, says remarkably little about how central bankers establish their reputations, or build credibility for their policies, in the first place.

Keywords: Time-consistency; Inflation; Unemployment (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 (search for similar items in EconPapers)
Date: 2002-04-15
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-reg
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Citations: View citations in EconPapers (5)

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