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.

(383 K)

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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