TY  - JOUR
AU  - Ireland,Peter N.
TI  - Expectations, Credibility, and Time-Consistent Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7234
PY  - 1999
Y2  - July 1999
UR  - http://www.nber.org/papers/w7234
L1  - http://www.nber.org/papers/w7234.pdf
N1  - Author contact info:
Peter N. Ireland
Boston College
Department of Economics
140 Commonwealth Ave.
Chestnut Hill, MA 02467-3859
Tel: 617/552-3687
Fax: 617/552-2308
E-Mail: irelandp@bc.edu
AB  - This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy.  It suggests that this problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority to build credibility for a disinflationary policy by demonstrating that it will stick to the policy even if it imposes short-run costs on the economy.  Starting with these restrictions, the paper derives conditions that guarantee the uniqueness of the model's steady state; monetary policy in this unique steady state involves the constant deflation advocated by Milton Friedman.
ER  -