38 Pages Posted: 26 Feb 2001 Last revised: 21 Oct 2010
Date Written: February 2001
We analyze two monetary economies - a cash-credit good model and a limited participation model. In our models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. We define and analyze Markov equilibrium in these economies. We show that there is no time inconsistency problem for a wide range of parameter values.
Suggested Citation: Suggested Citation
Albanesi, Stefania and Chari, Varadarajan V. and Christiano, Lawrence J., How Severe is the Time Inconsistency Problem in Monetary Policy? (February 2001). NBER Working Paper No. w8139. Available at SSRN: https://ssrn.com/abstract=261264