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Time-Consistent Monetary Policy under Output Persistence

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  • Gartner, Manfred

Abstract

This note merges the fact that real activity is persistent with a Barro-Gordon type model of endogenous monetary policy. It shows that persistence crucially affects policy choices. This applies in noncooperative games with a finite horizon and in games with an infinite horizon. Always, enforceable inflation announcements move higher when output persistence increases. Policymakers who discount future utility by 10 percent annually produce about ten times as much inflation under near-hysteresis as in a natural-rate scenario. A change in the policymarkers' time preference may affect inflation both ways, depending on present time preference and persistence. Copyright 1997 by Kluwer Academic Publishers

Suggested Citation

  • Gartner, Manfred, 1997. "Time-Consistent Monetary Policy under Output Persistence," Public Choice, Springer, vol. 92(3-4), pages 429-437, September.
    • Handle: RePEc:kap:pubcho:v:92:y:1997:i:3-4:p:429-37
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    1. repec:bla:jecsur:v:14:y:2000:i:5:p:527-61 is not listed on IDEAS
    2. Moser, Peter, 1999. "Checks and balances, and the supply of central bank independence," European Economic Review, Elsevier, vol. 43(8), pages 1569-1593, August.
    3. Caleiro, António, 2008. "How Can Voters Classify an Incumbent under Output Persistence," Economics Discussion Papers 2008-16, Kiel Institute for the World Economy (IfW Kiel).
    4. Gartner, Manfred, 1999. "The election cycle in the inflation bias: evidence from the G-7 countries," European Journal of Political Economy, Elsevier, vol. 15(4), pages 705-725, November.
    5. Berlemann, Michael & Markwardt, Gunther, 2006. "Variable rational partisan cycles and electoral uncertainty," European Journal of Political Economy, Elsevier, vol. 22(4), pages 874-886, December.
    6. Berlemann, Michael, 2000. "Monetary policy under uncertain planning horizon," Dresden Discussion Paper Series in Economics 07/00, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    7. Caleiro, António, 2009. "How upside down are political business cycles when there is output persistence," Research in Economics, Elsevier, vol. 63(1), pages 22-26, March.

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