Optimal Monetary Policy Rules from a Timeless Perspective
Centre for Dynamic Macroeconomic Analysis Working Paper Series
13 Pages Posted: 27 Oct 2005
Date Written: October 2005
Abstract
The timelessly optimal monetary policy proposed by Woodford (2003) may be dominated by alternative timeless policies. We provide a formal justification for these alternative policies. We demonstrate why discount rates do not matter and establish that optimizing over the unconditional expectation of the policy criterion function recovers these alternative strategies.
Keywords: Time consistency, unconditional expectation, timeless perspective, optimal monetary policy
JEL Classification: C61, E30, E52, E58, E61
Suggested Citation: Suggested Citation
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