NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Severe is the Time Inconsistency Problem in Monetary Policy?

Stefania Albanesi, V.V. Chari, Lawrence J. Christiano

NBER Working Paper No. 8139*
Issued in February 2001
NBER Program(s):   EFG

We analyze two monetary economies - a cash-credit good model and a limited participation model. In our models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. We define and analyze Markov equilibrium in these economies. We show that there is no time inconsistency problem for a wide range of parameter values.

*Published: Albanesi, Stefania, V. V. Chari and Lawrence J. Christiano. "How Severe Is The Time-Inconsistency Problem In Monetary Policy?," FRB Minneapolis - Quarterly Review, 2003, v27(3,Summer), 17-33.

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