IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/1990-001.html
   My bibliography  Save this paper

Strategic discipline in monetary policy with private information: optimal targeting periods

Author

Listed:
  • Michelle R. Garfinkel
  • Seonghwan Oh

Abstract

This paper analyzes the optimal choice of the length of time over which the monetary authority targets money growth, in a setting where the monetary authority?s lack of credibility potentially gives rise to an inflationary bias. When the monetary authority has some private information-e.g. a private forecast-that obscures the relevance of reputational considerations and the effectiveness of legislation to enforce the efficient policy, the targeting procedure serves as a device to diminish the inflationary bias while providing the monetary authority limited flexibility to react to its private information. The analysis strengthens the monetarist proposition that the monetary authority should follow a strict rule. Even when the monetary authority has a fairly accurate forecasting technology, the optimal targeting period can be very short, implying that limited or no flexibility in monetary policy would be optimal.

Suggested Citation

  • Michelle R. Garfinkel & Seonghwan Oh, 1990. "Strategic discipline in monetary policy with private information: optimal targeting periods," Working Papers 1990-001, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1990-001
    as

    Download full text from publisher

    File URL: http://research.stlouisfed.org/wp/more/1990-001/
    Download Restriction: no
    File URL: http://research.stlouisfed.org/wp/1990/90-001.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-1070, December.
    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. Hillier, Brian & Malcomson, James M, 1984. "Dynamic Inconsistency, Rational Expectations, and Optimal Government Policy," Econometrica, Econometric Society, vol. 52(6), pages 1437-1451, November.
    4. Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
    5. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
    6. 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.
    7. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    8. Robert P. Flood & Peter Isard, 1988. "Monetary Policy Strategies," NBER Working Papers 2770, National Bureau of Economic Research, Inc.
    9. Robert P. Flood & Peter Isard, 1989. "Monetary Policy Strategies," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 612-632, September.
    10. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
    11. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    12. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Piga, Gustavo, 1998. "In Search of an Independent Province for the Treasuries: How Should Public Debt Be Managed?," Journal of Economics and Business, Elsevier, vol. 50(3), pages 257-275, May.
    3. Georgios E. Chortareas & Stephen M. Miller, 2003. "Monetary Policy Delegation, Contract Costs and Contract Targets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 101-112, January.
    4. Georgios Chortareas & Stephen Miller, 2004. "Optimal Central Banker Contracts and Common Agency," Public Choice, Springer, vol. 121(1), pages 131-155, October.
    5. Chortareas, Georgios E & Miller, Stephen M, 2003. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Public Choice, Springer, vol. 116(3-4), pages 271-295, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    3. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    4. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    5. Mats Persson & Torsten Persson & Lars E. O. Svensson, 1998. "Debt, Cash Flow and Inflation Incentives: A Swedish Example," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 2, pages 28-66, Palgrave Macmillan.
    6. Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 537-577, November.
    7. Marco Hoeberichts, 2002. "The Credibility of Central Bank Announcements," Working Papers 0221, Banco de España.
    8. Huang, Haizhou & Wei, Shang-Jin, 2006. "Monetary policies for developing countries: The role of institutional quality," Journal of International Economics, Elsevier, vol. 70(1), pages 239-252, September.
    9. Helge Berger & Marcel Thum, 2000. "News Management in Monetary Policy: When Central Banks Should Talk to the Government," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 465-493, November.
    10. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    11. Clayton, Christopher & Schaab, Andreas, 2022. "A Theory of Dynamic Inflation Targets," TSE Working Papers 22-1389, Toulouse School of Economics (TSE).
    12. Hughes Hallett, Andrew & Libich, Jan, 2006. "Central Bank Independence, Accountability and Transparency: Complements or Strategic Substitutes?," CEPR Discussion Papers 5470, C.E.P.R. Discussion Papers.
    13. Ammer, John & Freeman, Richard T., 1995. "Inflation targeting in the 1990s: The experiences of New Zealand, Canada, and the United Kingdom," Journal of Economics and Business, Elsevier, vol. 47(2), pages 165-192, May.
    14. Vitale, Paolo, 2001. "Foreign Exchange Intervention, Policy Objectives and Macroeconomic Stability," CEPR Discussion Papers 2886, C.E.P.R. Discussion Papers.
    15. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    16. L. Bini-Smaghi, 1998. "The democratic accountability of the European Central Bank," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 51(205), pages 119-143.
    17. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    18. Eijffinger, S.C.W. & Schaling, E., 1993. "Central bank independence : Theory and evidence (Revised version)," Other publications TiSEM a26d2af2-01f7-4f0f-b2e9-3, Tilburg University, School of Economics and Management.
    19. Mr. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries: The Role of Corruption," IMF Working Papers 2003/183, International Monetary Fund.
    20. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank.

    More about this item

    Keywords

    Monetary policy; Inflation (Finance);

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1990-001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anna Oates (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.