Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
Home

About this journal
   Aims and scope

   Editorial board

Submit your article

Archive

Search

Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Dynamic Inconsistency and Monetary Policy

Vol.16, No.4, December , 23–55


English Version |  Korean Version
  •   (Kookmin University)

PDF
Abstract  

This paper explores implications for optimal monetary policies under the dynamic time inconsistency problem. I develop a dynamic optimizing model calibrated to recent Korean data covering from 1998 to 2004. I investigate the consequences of alternative monetary policies with particular focus on the loss function. Policy simulations include variations on discretion, commitment, strict inflation targeting, and Taylor rule. The simulation results indicate that commitment remains the most preferred policy regime in terms of the loss function. The strict inflation targeting regime is worse than the Taylor rule regime in terms of the welfare loss. Moreover, the loss in the strict inflation targeting increases as the society puts higher weight on the output stability, the cost-push shock is less persistent, the price is more staggered, or the labor supply is more elastic.


Keywords
   Optimal Monetary Policy, Dynamic Time Inconsistency, Commitment, Discretion, Inflation Targeting

JEL classification codes
  
Links

KCI list
Korean ES
JETEM at SCOPUS

Powered by MathJax