American Economic Review Vol. 83 No. 1 1993
Strategic Discipline in Monetary Policy with Private Information: Optimal Targeting Horizons
Abstract
This paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in policy when the monetary authority has some private information. By limiting the degree of flexibility permitted in policy, this procedure mitigates the credibility problem. As the length of the targeting horizon decreases, the severity of the credibility problem falls, but at the expense of weakening the monetary authority's ability to pursue its stabilization goals. Based on model simulations, the analysis studies the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy.
- Volume
- 83
- Issue
- 1
- Pages
- 99-117
- Sources
- bibtex:phds-export.bib