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Strategic Discipline in Monetary Policy with Private Information: Optimal Targeting Horizons

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  • Garfinkel, Michelle R
  • Oh, Seonghwan

Abstract

This paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in pol icy when the monetary authority has some private information. By limitin g the degree of flexibility permitted in policy, this procedure mitiga tes the credibility problem. As the length of the targeting horizon decreases, the severity of the credibility problem falls but at the expense of weakening the monetary authority's ability to pursue its stabilization goals. Based on model simulations, the analysis studi es the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy. Copyright 1993 by American Economic Association.

Suggested Citation

  • Garfinkel, Michelle R & Oh, Seonghwan, 1993. "Strategic Discipline in Monetary Policy with Private Information: Optimal Targeting Horizons," American Economic Review, American Economic Association, vol. 83(1), pages 99-117, March.
    • Handle: RePEc:aea:aecrev:v:83:y:1993:i:1:p:99-117
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    Citations

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    Cited by:

    1. Arayssi, Mahmoud, 2014. "Nominal Income and Inflation Targeting," MPRA Paper 62066, University Library of Munich, Germany.
    2. Garfinkel, Michelle R. & Oh, Seonghwan, 1995. "When and how much to talk credibility and flexibility in monetary policy with private information," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 341-357, April.
    3. Cukierman, A., 1996. "Targeting Monetary Aggregates and Inflation in Europe," Papers 37-96, Tel Aviv.
    4. José I. García de Paso, 1993. "Monetary policy with private information: a role for monetary targets," Documentos de Trabajo del ICAE 9315, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    5. Edward Kutsoati & Sharun Mukand, 2004. "Expectations and the Central Banker: Making Decisions the Market Expects to See? [revised]," Discussion Papers Series, Department of Economics, Tufts University 0418, Department of Economics, Tufts University.
    6. Carl E. Walsh, 2002. "When should central bankers be fired?," Economics of Governance, Springer, vol. 3(1), pages 1-21, March.
    7. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    8. Herrendorf, Berthold, 1998. "Inflation Targeting as a Way of Precommitment," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 431-448, July.
    9. Arayssi, Mahmoud, 2015. "Transparent rules for deposing central bankers," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 1-17.
    10. Patrick Artus, 1995. "Effets internes et internationaux de l'indépendance des banques centrales," Revue Économique, Programme National Persée, vol. 46(3), pages 857-867.
    11. Ugo Panizza, 1997. "Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets," Open Economies Review, Springer, vol. 8(1), pages 5-29, January.
    12. Gersbach, Hans & Hahn, Volker, 2006. "Signaling And Commitment: Monetary Versus Inflation Targeting," Macroeconomic Dynamics, Cambridge University Press, vol. 10(5), pages 595-624, November.
    13. Philip Arestis & Luiz Fernando Paula & Fernando Ferrari-Filho, 2007. "Inflation Targeting in Emerging Countries: The Case of Brazil," Palgrave Macmillan Books, in: Philip Arestis & Alfredo Saad-Filho (ed.), Political Economy of Brazil, chapter 8, pages 116-140, Palgrave Macmillan.
    14. Marina Halac & Pierre Yared, 2022. "Instrument-Based versus Target-Based Rules," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(1), pages 312-345.
    15. T. Christopher Canavan, 1995. "Can Ignorance Make Central Banks Behave?," Boston College Working Papers in Economics 291., Boston College Department of Economics.
    16. Issing Otmar & Wieland Volker, 2013. "Monetary Theory and Monetary Policy: Reflections on the Development over the last 150 Years," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(3), pages 423-445, June.
    17. Zafar Hayat, 2017. "Pakistan’s Monetary Policy: Some Fundamental Issues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 31-58.

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