Titolo
Disinflation policy and credibility: the role of conventions
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1993 - Fascicolo: 13 - Pagina iniziale: 1 - Pagina finale: 30

This paper studies a simple monetary policy game that allows for multiple equilibria in the private sector's price expectation formation process. The effects of monetary policy then vary with the convention that coordinates the expectations of private agents. The role of credibility is shown to depend critically on the dominant convention; for instance, a “tough” reputation can be counterproductive if an “opposing” convention is in force. In such a situation, the optimal government policy under precommitment equals the high inflation policy that was the suboptimal Nash-outcome in Barro and Gordon (1983); under discretion, a costly disinflation policy is implemented.



Testo completo: http://hdl.handle.net/1814/454

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