Optimal Monetary Policy with Overlapping Generations of Policymakers

Author/Editor:

Maral Shamloo

Publication Date:

February 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

In this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy.

Series:

Working Paper No. 2010/032

Subject:

Inflation Output gap Prices Production Technology

Frequency:

Monthly

English

Publication Date:

February 1, 2010

ISBN/ISSN:

9781451962642/1018-5941

Stock No:

WPIEA2010032

Pages:

36

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