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Monetary Policy Under Discretion Or Commitment? -An Empirical Study

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  • Fromlet, Pia

    (Department of Economics)

Abstract

In this paper, I investigate the monetary policy of five industrialized countries which have had explicit inflation targets for more than 15 years. Considering the case of discretionary policy as well as commitment, I estimate two first order conditions. The results support the theory of flexible in‡ation targeting under discretion for the United Kingdom. For New Zealand, the results under discretion suggests that monetary policymakers have been leaning with the wind rather than against the wind. The central banks of Canada, Sweden, and Australia have behaved in line with the theory of flexible in‡ation targeting under commitment.

Suggested Citation

  • Fromlet, Pia, 2013. "Monetary Policy Under Discretion Or Commitment? -An Empirical Study," Working Paper Series 2013:8, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2013_008
    as

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    References listed on IDEAS

    as
    1. Glenn Otto & Graham Voss, 2009. "Strict and Flexible Inflation Forecast Targets: An Empirical Investigation," Working Papers 202009, Hong Kong Institute for Monetary Research.
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    More about this item

    Keywords

    Inflation targeting; optimal policy under discretion; optimal policy under commitment;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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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