A note on imperfect credibility

Ippei Fujiwara, Timothy Kam and Takeki Sunakawa

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We explore how outcomes of optimal monetary policy with loose commitment (Schaumburg and Tambalotti, 2007; Debortoli and Nunes, 2010) can be observationally equivalent, or interpretable as outcomes of deeper optimal policy under sustainable plans (Chari and Kehoe, 1990). Both interpretations of "imperfect credibility" in optimal monetary policy design are attempts to rationalize outcomes that lie in between the conventional extremes of optimal policy under commitment and under discretion. In a standard monetary-policy framework, when we match impulse responses of inflation and the output gap to large enough markup shocks, we find that a small probability (1 - a = 0.05) of replanning in the quasi/loose commitment world corresponds to N = 18 in the N-period punishment optimal sustainable monetary policy, in terms of observable outcomes. For plausible cases of loose-commitment model economies (with a between 0.77 and 1) we can find an observationally equivalent sustainable-plan economy indexed by some N.

Keywords: imperfect credibility; monetary policy; sustainable policy (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2016-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... ara_kam_sunakawa.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:een:camaaa:2016-37

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().