Central Bank Reputation in a Forward-Looking Model

Abstract

for helpful comments and suggestions. All remaining errors would be mine. 1Résumé: Ce papier examine si des préoccupations de réputation peuvent amener la banque centrale à mettre en oeuvre la politique monétaire optimale temporellement incohérente dans un modèle néo-keynésien standard. La nature prospective de ce modèle est à cet égard intéressante à double titre: d'une part, elle accentue l'incohérence temporelle de la politique monétaire optimale en ajoutant un biais de stabilisation à l'éventuel biais d'in ‡ation; d'autre part, elle permet de modéliser la réputation de la banque centrale de manière plus satisfaisante en expliquant la coordination des agents privés sur la durée de punition. Nos résultats suggèrent que les biais d'in ‡ation et de stabilisation peuvent être surmontés pour toutes les calibrations utilisées dans la littérature. Ces résultats permettent d'endogénéiser la perspective atemporelle de Woodford et tendent à mettre en doute le bien-fondé de récentes propositions de délégation de politique monétaire.

The signaling effect of raising inflation

“…Sustainable policies. We now investigate whether a λ-type central banker can sustain the Ramsey allocation under a trigger strategy in the spirit of Chari and Kehoe (1990) and as in Kurozumi (2008) and Loisel (2008). We focus on revert-to-discretion strategies so that the the resulting sustainability condition at date t is:…”

Credibility and Monetary Policy

“…9 In our benchmark case, we focus on the time-invariant discretionary equilibrium. This assumption about the punishment is widespread in the literature: see Kurozumi (2008), Loisel (2008), Nakata (2014) among others. In Appendix A, we provide a game-theoretic foundation of such a punishment scheme.…”

“…This role of reputation has been investigated by Chang (1998) and Ireland (1997) who study the sustainability of the Friedman rule in monetary models. 13 Recent research has focused on the sustainability of the Ramsey allocation in the New-Keynesian model (see Kurozumi, 2008;Loisel, 2008;Sunakawa, 2015, among others) or Nakata (2014) 13 See also Abreu (1988) or Abreu et al (1990) on repeated games and Phelan and Stacchetti (2001) for the application to the Ramsey tax model. In our context, we are able to determine the worst sustainable equilibrium without investigating the full set of equilibria as in Abreu et al (1990).…”

Reputation and Liquidity Traps

“…Chari and Kehoe (1990), Phelan and Stacchetti (2001), and Stokey (1991) have studied the time-consistency of the Ramsey policy in models of fiscal policy, while Chang (1998), Ireland (1997), and Orlik and Presno (2010) have studied the time-consistency of the Friedman rule in monetary models. More recently, Kurozumi (2008), Loisel (2008) and Sunakawa (2013) studied the time-consistency of the Ramsey policy in New Keynesian models with cost-push shocks but without the zero lower bound constraint.…”

“…SeeBarro and Gordon (1983),Rogoff (1987), andIreland (1997) for the model with inflation bias, andKurozumi (2008),Loisel (2008), andSunakawa (2013) for the model with stabilization bias.…”