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Conservative Monetary Policy Rule and Inflation Mitigation Policies

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  • Whang Seong Hyeon

Abstract

This paper studies an enforceable conservative monetary policy rule and the welfare implications of inflation mitigation policies. By applying Rogoff's idea of appointing a conservative central banker to Barro and Gordon's framework, we derive the optimal degree of conservatism of society when the policy rule is enforceable in a multi-period set-up. In our work, the exact range of the parameter used to measure the degree of conservatism for the enforceable policy rule is expressed by some important parameters in the model such as the marginal cost of inflation, the slope coefficient in the Phillips curve, and the time discount factor. Using the basic set-up, we re-investigate Fischer and Summers' finding on the welfare effects of some inflation mitigation policies for the case of the reputational equilibrium under the conservative monetary policy rule. [E50]

Suggested Citation

  • Whang Seong Hyeon, 2000. "Conservative Monetary Policy Rule and Inflation Mitigation Policies," International Economic Journal, Taylor & Francis Journals, vol. 14(3), pages 63-74.
    • Handle: RePEc:taf:intecj:v:14:y:2000:i:3:p:63-74
    DOI: 10.1080/10168730000000028
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    1. 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.
    2. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    3. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    4. 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.
    5. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
    6. Fischer, Stanley & Summers, Lawrence H, 1989. "Should Governments Learn to Live with Inflation?," American Economic Review, American Economic Association, vol. 79(2), pages 382-387, May.
    7. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
    8. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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