Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099737 | Journal of Economic Dynamics and Control | 2006 | 29 Pages |
Abstract
This paper studies an advantage of commitment over discretion when a central bank observes only noisy measures of current inflation and output, in the context of an optimizing model with nominal-price stickiness. Under a commitment regime, if current policy turns out to be too expansionary (contractionary) because of the bank's information problem, subsequent policies should be slightly contractionary (expansionary). By following this approach, the central bank can improve the trade-off between the fluctuations of its goal variables caused by economic shocks and their fluctuations caused by the bank's response to measurement error.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Kosuke Aoki,