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Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets

Jean-Bernard Chatelain () and Kirsten Ralf

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of the present paper is to provide criteria for a central bank of how to choose among different monetary-policy rules when caring about a number of policy targets such as the output gap and expected inflation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible.

Keywords: Determinacy; Proportional Feedback Rules; Dynamic Stochastic General Equilibrium; Ramsey Optimal Policy under Quasi-Commitment. (search for similar items in EconPapers)
JEL-codes: B22 B23 B41 C61 C62 E52 (search for similar items in EconPapers)
Date: 2020-10-31
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-ore
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Published in Revue d'Economie Politique 130.5(2020): pp. 823-846

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/104526/1/MPRA_paper_104526.pdf original version (application/pdf)

Related works:
Journal Article: Policy Maker’s Credibility with Predetermined Instruments for Forward-Looking Targets (2020) Downloads
Working Paper: Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets (2020) Downloads
Working Paper: Policy Maker’s Credibility with Predetermined Instruments for Forward-looking Targets (2020)
Working Paper: Policy Maker’s Credibility with Predetermined Instruments for Forward-looking Targets (2020)
Working Paper: Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets (2019) Downloads
Working Paper: Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets (2019) Downloads
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