The Time Inconsistency of Monetary Policy with Inflation Persistence.

Working paper

In a monetary policy model incorporating partial persistence in inflation it is shown that inflation bias is reduced and the response to shocks improved if the policy maker has a discount rate lower than its true social value. Thus a patient central banker is shown to be a third mechanism for offsetting time inconsistency problems in addition to Rogoff's conservative central banker and the principal-agent approach of Walsh. The paper also analyses outcomes under the latter regimes and the opt...

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Authors: Mash, R

• Publisher: Department of Economics (University of Oxford)
• Series: Discussion paper series
• Publication date: 2000-01-01
• Language: English