Working Paper
Expectations, credibility, and time-consistent monetary policy
Abstract: This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. The author suggests that the problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority to build credibility for a disinflationary policy by demonstrating that it will stick to that policy even if it imposes short-run costs on the economy.
Keywords: Monetary policy; Rational expectations (Economic theory);
https://doi.org/10.26509/frbc-wp-199812
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 1998
Number: 9812