Time-consistent Policy and Persistent Changes in Inflation, Issue 3529

Front Cover
National Bureau of Economic Research, 1990 - Inflation (Finance) - 32 pages
This paper presents a model of dynamically consistent monetary policy that explains changes in inflation over time. In the model -- as in the postwar United States -- adverse supply shocks trigger persistent increases in inflation, and disinflation occurs when a tough policymaker creates a recession. The paper also proposes an approach to selecting a unique, plausible equilibrium in infinite-horizon models of monetary policy.

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