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Optimal commitment policy under noisy information

Aoki, Kosuke (2002) Optimal commitment policy under noisy information. 3370. Centre for Economic Policy Research, London, UK.

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Identification Number: 3370

Abstract

This Paper studies an advantage of commitment over discretion when a central bank observes only noisy measures of current inflation and output, in the context of an optimizing model with nominal-price stickiness. Under a commitment regime, if current policy turns out to be too expansionary (contractionary) because of the bank’s information problem, subsequent policies should be slightly contractionary (expansionary). By following this approach, the central bank can improve the trade-off between the fluctuations of its goal variables caused by economic shocks and those fluctuations caused by the bank’s response to measurement error.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.cepr.org
Additional Information: © 2002 Kosuke Aoki
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Date Deposited: 04 Jun 2008 09:09
Last Modified: 01 Oct 2010 08:54
URI: http://eprints.lse.ac.uk/id/eprint/5316

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