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On the Unimportance of Commitment for Monetary Policy

Juan Paez-Farrell

No 2023018, Working Papers from The University of Sheffield, Department of Economics

Abstract: In a New Keynesian model where the trade-off between stabilising the aggregate inflation rate and the output gap arises from sectoral asymmetries, the gains from commitment are either zero or negligible. Thus, to the extent that economic fluctu- ations are caused by sectoral shocks, policies designed to overcome the stabilisation bias are aiming to correct an unimportant problem.

Keywords: optimal monetary policy; stabilization bias; discretion; commitment; inflation target (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2023-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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