Arbeitspapier

Discretion and the transmission lags of monetary policy

Monetary policy transmission lags create credibility problems for the inflationtargeting policy maker who acts under discretion. We show that if prices react to monetary policy with a longer lag than output, the welfare maximizing inflationtargeting policy implies no policy stabilization of cost-push shocks in the canonical New Keynesian model. The reason is simple: for the period monetary policy influences output, inflation is predetermined and the best discretionary policy is to stabilize the output gap fully. We find that money growth targeting comes close to replicating the welfare-maximizing policy under commitment if there are transmission lags.

ISBN
978-952-462-363-6
Sprache
Englisch

Erschienen in
Series: Bank of Finland Research Discussion Papers ; No. 8/2007

Klassifikation
Wirtschaft
Monetary Policy
Central Banks and Their Policies
Policy Objectives; Policy Designs and Consistency; Policy Coordination
Thema
discretionary and stabilization bias
monetary policy
transmission lags
inflation targeting
money targeting

Ereignis
Geistige Schöpfung
(wer)
Kilponen, Juha
Leitemo, Kai
Ereignis
Veröffentlichung
(wer)
Bank of Finland
(wo)
Helsinki
(wann)
2007

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Kilponen, Juha
  • Leitemo, Kai
  • Bank of Finland

Entstanden

  • 2007

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