A commonly held view is that the life of a monetary policy maker forced to operate under discretion can be improved by the authorities delegating monetary policy objectives that are different from the social welfare function (including interest rate smoothing, price-level targeting and...

The volatility of inflation and output has fallen in most advanced economies in the 1990s and 2000s. We use a monetary overlapping generations model to discuss the cause and durability of this macroeconomic change. In that model, agents' decision rules require them to make forecasts of future...

A literature has grown up around papers by Kydland and Prescott (1977) and Barro and Gordon (1983) which shows how governments have an incentive to inflate the economy (to generate extra output) then the private sector will anticipate this and the economy will stick at a high inflation...

First, we modify the Barro-Gordon model so that a credibility-stabilization tradeoff will remain, even when a performance contract of the type envisaged by Walsh (1995) is imposed on the central bank governor. We do this by modeling a real interest rate bias along with the inflation bias. Then,...