Imperfect Credibility versus No Credibility of Optimal Monetary Policy
Jean-Bernard Chatelain  1, 2@  , Kirsten Ralf  3  
1 : Paris School of Economics, Université Paris 1 Panthéon Sorbonne  (PSE)  -  Site web
Université Paris 1 Panthéon Sorbonne, Paris School of Economics, PARIS SCHOOL OF ECONOMICS
48 Boulevard Jourdan 75014 Paris -  France
2 : Paris School of Economics
Université Paris I Panthéon Sorbonne
3 : ESCE International Business School, 10 rue Sextius Michel, 75015 Paris
ESCE

When the probability of not reneging commitment of optimal monetary policy under quasi-commitment tends to zero, the limit of this equilibrium is qualitatively and quantitatively different from the discretion equilibrium assuming a zero probability of not reneging commitment for the classic example of the new-Keynesian Phillips curve. The impulse response functions and welfare are different. The policy rule parameter have opposite signs. The inflation auto-correlation parameter crosses a saddlenode bifurcation when shitfing to near-zero to zero probability of not reneging commitment. These results are obtained for all values of the elasticity of substitution between goods in monopolistic competition which enters in the welfare loss function and in the slope of the new-Keynesian Phillips curve.


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