The Effect of Discounting on Policy Choices in Inflation Targeting Regimes

17 Pages Posted: 8 May 2006

See all articles by SGB Henry

SGB Henry

affiliation not provided to SSRN

Mathan Satchi

University of Kent - Department of Economics

David Vines

University of Oxford - Balliol College - Department of Economics; Australian National University (ANU); Centre for Economic Policy Research (CEPR)

Abstract

This article assesses the implications of discounting on a result derived by Bean (1998): that in a model of monetary policy where policy acts with a lag, the outcomes of monetary policy are very similar for a wide range of preferences of the monetary authority with respect to inflation and output stability. We show that when the authority discounts the future, outcomes become more sensitive to its preferences, and that it is important to take the discount rate into account when examining the question of how the authority's remit should be specified.

Suggested Citation

Henry, SGB and Satchi, Mathan and Vines, David, The Effect of Discounting on Policy Choices in Inflation Targeting Regimes. Economic Journal, Vol. 116, No. 508, pp. 266-282, January 2006, Available at SSRN: https://ssrn.com/abstract=878197 or http://dx.doi.org/10.1111/j.1468-0297.2006.01056.x

SGB Henry

affiliation not provided to SSRN

No Address Available

Mathan Satchi (Contact Author)

University of Kent - Department of Economics ( email )

Keynes College
Kent, CT2 7NP
United Kingdom

David Vines

University of Oxford - Balliol College - Department of Economics ( email )

Manor Road
Oxford, OX1 3BJ, Oxfordshire OX13UQ
United Kingdom
+44 1865 271 067 (Phone)
+44 1865 271 094 (Fax)

Australian National University (ANU)

Canberra, Australian Capital Territory
Australia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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