Monetary Rules, Determinacy and Limited Enforcement

32 Pages Posted: 3 May 2017 Last revised: 11 May 2019

See all articles by Jean Barthelemy

Jean Barthelemy

Banque de France

Eric Mengus

HEC Paris - Economics & Decision Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: November 6, 2018

Abstract

We investigate the ability of monetary policy rules to implement a unique equilibrium outcome when the enforcement of rules is limited. We combine the approach of Bassetto (2005) and Atkeson et al. (2010) to study implementation and the one by Chari and Kehoe (1990) to allow policy deviations. Our main result is that, under limited enforcement, there does not exist a policy rule that implements a unique outcome: the private sector can always deter the central bank to stick to the rule. We then provide further results on implementation when private agents expect a given policy and when they hesitate between multiple policies.

Keywords: Policy rules, determinacy, limited enforcement

JEL Classification: E31, E52, E65

Suggested Citation

Barthelemy, Jean and Mengus, Eric, Monetary Rules, Determinacy and Limited Enforcement (November 6, 2018). HEC Paris Research Paper No. ECO/SCD-2017-1202. Available at SSRN: https://ssrn.com/abstract=2962259 or http://dx.doi.org/10.2139/ssrn.2962259

Jean Barthelemy (Contact Author)

Banque de France ( email )

Paris
France

Eric Mengus

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

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