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- Title
Monetary Policy, Expectations and Commitment.
- Authors
Evans, George W.; Honkapohja, Seppo
- Abstract
Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest-rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts.
- Subjects
MONETARY policy; RATIONAL expectations (Economic theory); ECONOMIC equilibrium; ECONOMIC policy; ECONOMIC forecasting; PRIVATE sector
- Publication
Scandinavian Journal of Economics, 2006, Vol 108, Issue 1, p15
- ISSN
0347-0520
- Publication type
Article
- DOI
10.1111/j.1467-9442.2006.00437.x