TY  - JOUR
AU  - Barro,Robert J.
TI  - Reputation in a Model of Monetary Policy with Incomplete Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1794
PY  - 1986
Y2  - December 1986
UR  - http://www.nber.org/papers/w1794
L1  - http://www.nber.org/papers/w1794.pdf
N1  - Author contact info:
Robert J. Barro
Department of Economics
Littauer Center 218
Harvard University
Cambridge, MA 02138
Tel: 617/495-3203
Fax: 617/496-8629
E-Mail: rbarro@harvard.edu
AB  - Previous models of rules versus discretion are extended to include uncertainty about the policymaker's "type." When people observe low inflation, they raise the possibility that the policymaker is committed to low inflation (type 1). This enhancement of reputation gives the uncommitted policymaker (type 2) an incentive to masquerade as the committed type. In the equilibrium the policymaker of type 1 delivers surprisingly low inflation -- with corresponding costs to the economy -- over an extended interval. The type 2 person mimics this outcome for awhile, but shift seventually to high inflation. This high inflation is surprising initially, but subsequently becomes anticipated.
ER  -