Monetary Policy, Expectations and Commitment
Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest-rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts. Copyright The editors of the "Scandinavian Journal of Economics", 2006 .
Year of publication: |
2006
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Authors: | Evans, George W. ; Honkapohja, Seppo |
Published in: |
Scandinavian Journal of Economics. - Wiley Blackwell, ISSN 1467-9442. - Vol. 108.2006, 1, p. 15-38
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Publisher: |
Wiley Blackwell |
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