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Barro-Gordon revisited: Reputational equilibria with inferential expectations

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  • Henckel, Timo
  • Menzies, Gordon D.
  • Prokhovnik, Nick
  • Zizzo, Daniel J.

Abstract

We incorporate inferential expectations into the Barro-Gordon model (Barro and Gordon, 1983a) of time inconsistency and consider reputational equilibria. The range of sustainable equilibria shrinks as the private sector becomes more belief-conservative.

Suggested Citation

  • Henckel, Timo & Menzies, Gordon D. & Prokhovnik, Nick & Zizzo, Daniel J., 2011. "Barro-Gordon revisited: Reputational equilibria with inferential expectations," Economics Letters, Elsevier, vol. 112(2), pages 144-147, August.
    • Handle: RePEc:eee:ecolet:v:112:y:2011:i:2:p:144-147
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    References listed on IDEAS

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    1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    3. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    4. Menzies Gordon Douglas & Zizzo Daniel John, 2009. "Inferential Expectations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-27, December.
    5. Drew Fudenberg & Eric Maskin, 2008. "The Folk Theorem In Repeated Games With Discounting Or With Incomplete Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 11, pages 209-230, World Scientific Publishing Co. Pte. Ltd..
    6. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, April.
    7. Gordon Menzies & Daniel Zizzo, 2007. "Exchange Rate Markets And Conservative Inferential Expectations," CAMA Working Papers 2007-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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    Citations

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    Cited by:

    1. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    2. Timo Henckel & Gordon D. Menzies & Daniel J. Zizzo, 2013. "The Great Recession and the Two Dimensions of European Central Bank Credibility," CAMA Working Papers 2013-55, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Timo Henckel & Gordon D. Menzies & Peter Moffat & Daniel J. Zizzo, 2019. "Three Dimensions of Central Bank Credibility and Inferential Expectations: The Euro Zone," Working Paper Series 56, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    5. Duffy, John & Heinemann, Frank, 2021. "Central bank reputation, cheap talk and transparency as substitutes for commitment: Experimental evidence," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 887-903.
    6. Bruce Lyons & Gordon Menzies & Daniel Zizzo, 2012. "Conflicting evidence and decisions by agency professionals: an experimental test in the context of merger regulation," Theory and Decision, Springer, vol. 73(3), pages 465-499, September.
    7. Henckel, Timo & Menzies, Gordon D. & Moffatt, Peter & Zizzo, Daniel J., 2019. "Three dimensions of central bank credibility and inferential expectations: The Euro zone," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 294-308.
    8. Piotr, Staszkiewicz, 2012. "Model for reputational risk for subsidiaries of non-public group with reciprocal shareholding," MPRA Paper 35812, University Library of Munich, Germany.
    9. Timo Henckel & Gordon Menzies & Peter Moffat & Daniel J. Zizzo, 2017. "Sticky Belief Adjustment: A Double Hurdle Model and Experimental Evidence," Working Paper Series 40, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    10. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    11. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
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    More about this item

    Keywords

    Credibility Time inconsistency Reputation Inferential expectations;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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