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Imperfect Credibility versus No Credibility of Optimal Monetary Policy

Jean-Bernard Chatelain () and Kirsten Ralf

PSE Working Papers from HAL

Abstract: When the probability of not reneging commitment of optimal monetary policy under quasi-commitment tends to zero, the limit of this equilibrium is qualitatively and quantitatively different from the discretion equilibrium assuming a zero probability of not reneging commitment for the classic example of the new-Keynesian Phillips curve. The impulse response functions and welfare are different. The policy rule parameter have opposite signs. The inflation auto-correlation parameter crosses a saddlenode bifurcation when shit.ng to near-zero to zero probability of not reneging commitment. These results are obtained for all values of the elasticity of substitution between goods in monopolistic competition which enters in the welfare loss function and in the slope of the new-Keynesian Phillips curve.

Keywords: Ramsey optimal policy under imperfact commitment; zero-credibility policy; Impulse response function; Welfare; New-Keynesian Phillips curve; zero-; credibility policy; Impulse response function; Welfare; New-Keynesian Phillips; curve (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2018-07
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01849864
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