Title: The Importance of Commitment in the New Keynesian Model
Abstract: In the New Keynesian model, even if the central bank does not have an over-ambitious output target, policy under discretion leads to an inefficiency known as the stabilization bias. In this paper, using a New Keynesian model, we explore and quantify how a cost channel and multi-period data revisions affect the size of the stabilization bias. We find that the presence of a cost channel in the model increases the stabilization bias significantly. On the other hand, multi-period revisions to output and inflation reduce the inefficiency associated with discretionary policy.
Publication Year: 2010
Publication Date: 2010-01-16
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 7
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot