Title

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.

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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