How severe is the time-inconsistency problem in monetary policy?

Albanesi, Stefania; Chari, V. V.; Christiano, Lawrence J.

Journal Article

How severe is the time-inconsistency problem in monetary policy?

Abstract: This study analyzes two monetary economies, a cash-credit good model and a limited-participation model. In these models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. The study defines and analyzes Markov equilibrium in these economies and shows that there is no time-inconsistency problem for a wide range of parameter values.

Keywords: Monetary policy; Inflation (Finance); Money supply;

Status: Published in Advances in economics and econometrics: Theory and applications> (Vol. 3, 2003, pp. 123-150)