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Previous models of rules versus discretion are extended to include uncertainty about the policymaker's "type." When people observe low inflation, they raise the possibility that the policymaker is committed to low inflation (type 1). This enhancement of reputation gives the uncommitted...
Persistent link: https://www.econbiz.de/10012477283
Under a discretionary regime the monetary authority makes no commitments about future money and prices. Then, if surprise inflation conveys economic benefits and if people form expectations rationally, it turns out that the equilibrium involves high and variable monetary growth and inflation....
Persistent link: https://www.econbiz.de/10012477615
In a discretionary regime the monetary authority can print more money and create more inflation than people expect. But, although these inflation surprises can have some benefits, they cannot arise systematically in equilibrium when people understand the policymaker's incentives and form their...
Persistent link: https://www.econbiz.de/10012478024
Inflationary finance involves first, the tax on cash balances from expected inflation, and second, a capital levy from unexpected inflation. From the standpoint of minimizing distortions, these capital levies are attractive, ex post, to the policymaker. In a full equilibrium two conditions hold:...
Persistent link: https://www.econbiz.de/10012478219
Natural-rate models suggest that the systematic parts of monetary policy will not have important consequences for the business cycle. Nevertheless, we often observe high and variable rates of monetary growth, and a tendency for monetary authorities to pursue countercyclical policies. This...
Persistent link: https://www.econbiz.de/10012478306
of business cycle theory relates this finding to temporary confusions between absolute and relative price changes. These … shifts in nominal aggregates is subject to question. Another strand of theory, based on long-term nominal contracts and …
Persistent link: https://www.econbiz.de/10012478820
Optimal debt management can be thought of in three stages. First, if taxes are lump sum and the other conditions for Ricardian equivalence hold, then the division of government financing between debt and taxes is irrelevant, and the whole level of public debt is indeterminate from an optimal-tax...
Persistent link: https://www.econbiz.de/10012473543