Title: Monetary Policy:Rule or Discretion——An Analysis Based on the Perspective of Game Theory
Abstract: Doing by rule and discretion is substitutive choice that the Central Bank faces.Based on the Barro Gordon model,this paper analyzes the process of the game between the public and the Central Bank under the monetary systems of discretion and rule,revealing the time consistency of the monetary policy more clearly.Under discretion,the Central Bank is not capable of making low-inflation commitment,and the economy will suffer from a good-for-nothing high inflation.Rule is a kind of commitment,the Central Bank restricts its own action by the way of making a commitment,which is helpful to internalize the externality of the policy in the future,then the policy will acquire time consistency,and the economy will reach a more effective equillibrium.
Publication Year: 2006
Publication Date: 2006-01-01
Language: en
Type: article
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Cited By Count: 1
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