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The time inconsistency of monetary policy with inflation persistence

Abstract:

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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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2000-07-01
Paper number:
15
Keywords:
Pubs id:
1144393
Local pid:
pubs:1144393
Deposit date:
2020-12-15

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