Monetary Policy Under Imperfect Commitment
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| Author | : Hakan Kara |
| Publisher | : |
| Total Pages | : 30 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
In the standard forward-looking models of the recent literature, theoretical optimal monetary policy rules imply much higher inertia of interest rates than estimated historical policy rules. Motivated by the observation that theoretical policy rules often assume perfect commitment on the part of the monetary authority, this study formulates the monetary policy behavior with a continuum from discretion to full commitment and, using this setup, seeks to match the theory with evidence. It is shown that optimal instrument rules under imperfect commitment exhibit less inertia on the policy instrument; the degree of inertia declines as the policy moves from full commitment to discretion. Therefore, under the assumption that the monetary authorities operate somewhere in between discretion and commitment, historically observed policy behavior can be reconciled with the optimal policy rulesᔞven in a purely forward-looking framework. As a by-product, we propose a method to measure the stance of monetary policy from the perspective of discretion versus commitment. To test our proposal, we estimate a structural monetary policy rule for the Federal Reserve, which nests discretion and commitment as special cases. Empirical results suggest that recent practice of monetary policy has been closer to commitment than the policy pursued in the 1970s.
| Author | : Davide Debortoli |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2008 |
| Genre | : |
| ISBN | : 9788469217177 |
| Author | : Hakan Kara |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
In the conventional optimal monetary policy framework, two key assumptions underline the full commitment solution: Monetary authority is perfectly credible, and can commit for an infinite number of periods. Using a baseline forward looking model, this study explores the implications of relaxing these assumptions in turn. First, finite lasting commitments are introduced using a stochastic exogenous process that generates policy reoptimizations. As a consequence, monetary policy is characterized with a continuum from pure discretion to full commitment. Second, we solve the optimal and robust targeting rules when the central bank confronts imperfect and/or uncertain credibility. Imperfect credibility is defined as a situation in which the private sector expects the commitment regime to end sooner than that is intended by the policy maker. The results indicate that, under imperfect credibility, optimal policy becomes observationally closer to the discretionary solution, the more being so as the degree of uncertainty rises. These findings may be insightful for explaining the observed near-discretionary behavior of the central banks, which indeed operate under imperfect credibility.
| Author | : Richard T. Froyen |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 466 |
| Release | : 2019 |
| Genre | : Mathematical optimization |
| ISBN | : 1784717193 |
This book provides a thorough survey of the model-based literature on optimal monetary in a stochastic setting. The survey begins with the literature of the 1970s which focused on the information problem in policy design and extends to the New Keynesian approach of the 1990s which centered on evaluating alternative targeting strategies. New to the second edition is consideration of research since the world financial crisis on the role of financial markets and institutions in the conduct of monetary policy.
| Author | : Maral Shamloo |
| Publisher | : International Monetary Fund |
| Total Pages | : 37 |
| Release | : 2010-02-01 |
| Genre | : Business & Economics |
| ISBN | : 1451962649 |
In this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy.
| Author | : Klaus Adam |
| Publisher | : |
| Total Pages | : 32 |
| Release | : 2003 |
| Genre | : Economics |
| ISBN | : |
| Author | : |
| Publisher | : |
| Total Pages | : |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
Resum Lobjectiu daquesta tesi és analitzar com shan de concebre les polítiques fiscals i monetàries en un context en què els polítics tenen problemes de credibilitat. Es desenvolupen metodologies i aplicacions per mostrar com diferents graus de credibilitat de les institucions polítiques afecten la determinació dimpostos, deute públic, instruments monetaris i, en general, els resultats econòmics. En el primer capítol - Loose commitment (Compromís Dèbil) -, sintrodueix una nova metodologia per resoldre problemes de política òptima tenint en compte que els polítics podrien no complir les seves promeses, i analitza els efectes de la credibilitat sobre la imposició sobre el capital i sobre el treball. El segon capítol - Political Disagreement Lack of Commitment and the Level of Debt (Desacord Polític, Falta de Compromís i el Nivell de Deute) - considera un cas en què la credibilitat es limitada per el fet dhaver-hi alternança entre polítics amb objectius diferents. En particular, es mostra com lalternança política i la falta de compromís afecten el nivell de deute públic. Finalment, el tercer capítol - The Macroeconomic Effects of Unstable Monetary Policy Objectives (Els Efectes Macroeconòmics de la Inestabilitat dels Objectius de Política Monetària) - analitza com la possibilitat de canvis en els objectius influeixen en les decisions de política monetària. Resumen El objetivo de esta tesis es analizar cómo se deben concebir las políticas fiscales y monetarias en un contexto en que los políticos tienen problemas de credibilidad. Se desarrollan metodologías y aplicaciones para mostrar cómo diferentes grados de credibilidad de las instituciones políticas afectan la determinación de impuestos, deuda pública, instrumentos monetarios y, en general, los resultados económicos. En el primer capítulo - Loose commitment (Compromiso Débil)-, se introduce una nueva metodología para resolver problemas de política óptima tomando en cuenta que los políticos podrían no cumplir con sus.
| Author | : Jean-Bernard Chatelain |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2020 |
| Genre | : |
| ISBN | : |
A minimal central bank credibility, with a non-zero probability of not renegning his commitment ("quasi-commitment"), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy maker will renege his commitment ("optimal discretion"), leads to the local instability of inflation dynamics. In the textbook example of the new-Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation.
| Author | : Klaus Adam (monetair beleid.) |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
| Author | : Christian Jensen |
| Publisher | : |
| Total Pages | : 9 |
| Release | : 2002 |
| Genre | : Economics |
| ISBN | : |
Several recent papers have usefully emphasized the inefficiency that arises from discretionary monetary policymaking, relative to optimal policy from a 'timeless perspective, ' in macroeconomic models with forward-looking private behavior. The inefficiency in question is in terms of average outcomes of the conditional expectation of a policy objective that reflects the discounted present value of current and future period losses (which involve squared deviations of inflation and output from specified target levels). In the literature, most of the analysis has been conducted in an optimizing model that features a Calvo-Rotemberg price adjustment equation that includes a 'cost-push' shock term. This literature suggests that policy, which keeps inflation equal to a negative multiple of the change in the output gap, is optimal with respect to the criterion mentioned above -- the unconditional expectation of the policymaker's objective function. Results reported here show, however, that this is not the case -- that an alternative policy rule, suggested by the approach of 'policy design' rather than by 'optimal control, ' delivers superior results
