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Existence and Characterization of Time-Consistent Monetary Policy Rules

  • Gerhard Sorger
Part of the Advances in Computational Management Science book series (AICM, volume 5)

Abstract

We define a monetary policy rule as a function mapping any given output level of the economy to a corresponding rate of inflation. Such a rule is time-consistent if the central bank has no incentive to deviate from it, no matter what the actual output level of the economy is. Within a simple dynamic model combining an output-inflation trade-off with rational private-sector expectations we study existence and properties of time-consistent monetary policy rules. It is shown that such rules exist only if (i) the central bank gives relatively high weight to price stability and relatively low weight to output stability and if (ii) the random shocks to the economy are not too strong. If time-consistent monetary policy rules exist, they are generically non-unique.

Keywords

Monetary Policy Central Bank Inflation Rate Differential Game Policy Rule 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Gerhard Sorger

There are no affiliations available

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