Committing and reneging: a dynamic model of policy regimes
Joseph Haubrich () and
No 1999-020, Working Papers from Federal Reserve Bank of St. Louis
Actual policy decisions are made in real time and are not irrevocable. These observations are mundane, but most policy modeling has neglected them. We show that when policy is made in an environment of uncertainty, costs of switching policies give the option to wait positive value. This insight has several implications: First, the option to wait itself makes the incumbent regime relatively more attractive (compared to the traditional once-and-for-all analysis). Second, the option to wait means that increased uncertainty makes the incumbent regime more attractive. Third, because the commitment decision takes place in real time, policy choice displays hysteresis.
Keywords: Monetary policy; Monetary theory (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Committing and reneging: A dynamic model of policy regimes (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:1999-020
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().