Monetary Policy Delegation and Equilibrium Coordination

Andrew Blake, Tatiana Kirsanova and Anthony Yates ()

No 2013-54, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper revisits the argument that the stabilisation bias that arises under discretionary monetary policy can be reduced if policy is delegated to a policymaker with redesigned objectives. We study four delegation schemes: price level targeting, interest rate smoothing, speed limits and straight conservatism. These can all increase social welfare in models with a unique discretionary equilibrium. We investigate how these schemes perform in a model with capital accumulation where uniqueness does not necessarily apply. We discuss how multiplicity arises and demonstrate that no delegation scheme is able to eliminate all potential bad equilibria. Price level targeting has two interesting features. It can create a new equilibrium that is welfare dominated, but it can also alter equilibrium stability properties and make coordination on the best equilibrium more likely.

Keywords: Time Consistency; Discretion; Multiple Equilibria; Policy Delegation (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Working Paper: Monetary policy delegation and equilibrium coordination (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:481

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