Myopia, Discretion, and Commitment in a Two-Period AS/AD Model

23 Pages Posted: 17 May 2013 Last revised: 22 Jan 2014

See all articles by Pavel S. Kapinos

Pavel S. Kapinos

Federal Reserve Bank of Dallas--Financial Industry Studies

Date Written: March 31, 2013

Abstract

A large body of pedagogical literature has recently emerged to place the New Keynesian framework for analyzing business cycle fluctuations and the conduct of monetary policy into undergraduate economics curricula. This paper develops the graphical apparatus for the analysis of optimal monetary policy in the context of a two period model under alternative assumptions about the formation of inflationary expectations. It demonstrates that differences in assumptions about the formation of inflationary expectations translate into quite different conclusions regarding the optimal conduct of monetary policy.

Keywords: New Keynesian Model, inflationary expectations, optimal monetary policy, myopia, discretion, commitment

JEL Classification: A22, E52, E58

Suggested Citation

Kapinos, Pavel S., Myopia, Discretion, and Commitment in a Two-Period AS/AD Model (March 31, 2013). Available at SSRN: https://ssrn.com/abstract=2265452 or http://dx.doi.org/10.2139/ssrn.2265452

Pavel S. Kapinos (Contact Author)

Federal Reserve Bank of Dallas--Financial Industry Studies ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://https://sites.google.com/site/pavelkapinos/

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