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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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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
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
Sets: Collections > Economists Online
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 3370
Date Deposited: 04 Jun 2008 09:09
URL: http://eprints.lse.ac.uk/5316/

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