How Severe is the Time Inconsistency Problem in Monetary Policy?
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.
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. citation courtesy of