Credibility and the Value of Information Transmission in a Model of Monetary Policy and Inflation
Tamer Basar and
Mark Salmon ()
The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics
In this paper we solve for the optimal (Stickler) policy in a model of credibility and monetary policy developed by Cuckierman and Meltzer (1986). Unlike the (Nash) solution provided by Cuckierman and Meltzer the dynamic optimisation problem facing the monetary authority in this case is not a linear quadratic form and certainly equivalence does not apply. The learning behaviour of the private sector (regarding the policy maker's preferences) becomes intimately linked with the choice of the optimal policy and cannot be separated as in the certainty equivalent case. Once the dual effect of the optimal Stackelberg policy is recognised the monetary authority has an additional channel of influence to consider beyond that taken into policy rules. Unlike Nash behaviour the Stackelberg solution implies no inflationary bias but it lacks credibility. The learning behaviour of the private sector does not sufficiently inhibit the incentive of the monetary authority to cheat in this model despite the fact that this learning is explicitly recognised in the Stackelberg solution.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... 78-1988/twerp289.pdf
Journal Article: Credibility and the value of information transmission in a model of monetary policy and inflation (1990)
Working Paper: Credibility and the Value of Information Transmission in a Model of Monetary Policy and Inflation (1989)
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:wrk:warwec:289
Access Statistics for this paper
More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().