A reputation strategic model of monetary policy in continuous-time
Document Type
Journal article
Source Publication
Journal of Macroeconomics
Publication Date
12-1-2009
Volume
31
Issue
4
First Page
523
Last Page
533
Keywords
Monetary policy, Time consistency problem, Reputation, Continuous model
Abstract
This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.
DOI
10.1016/j.jmacro.2008.12.003
Print ISSN
01640704
E-ISSN
1873152X
Publisher Statement
Copyright © 2008 Elsevier Inc.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Li, J., Liu, Y., & Tian, G. (2009). A reputation strategic model of monetary policy in continuous-time. Journal of Macroeconomics, 31(4), 523-533. doi: 10.1016/j.jmacro.2008.12.003