Basso, Henrique S. (2009) Delegation, time inconsistency and sustainable equilibrium. Journal of Economic Dynamics and Control, Vol.33 (No.8). pp. 1617-1629. doi:10.1016/j.jedc.2009.02.008 ISSN 0165-1889.

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Abstract

This paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government's strategy. The method of Chari and Kehoe [1990. Sustainable plans. Journal of Political Economy 98 (4), 783–802] is applied to characterize the entire set of sustainable outcomes. Countering McCallum's [1995. Two fallacies concerning central-bank independence. American Economic Review 85 (2), 207–211] second fallacy, delegation is able to eliminate the time inconsistency problem, with the commitment policy being sustained under discretion for any intertemporal discount rate

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Journal of Economic Dynamics and Control
Publisher:	Elsevier BV
ISSN:	0165-1889
Official Date:	2009
Dates:	Date Event 2009 Published
Volume:	Vol.33
Number:	No.8
Number of Pages:	13
Page Range:	pp. 1617-1629
DOI:	10.1016/j.jedc.2009.02.008
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council
Grant number:	PTA-030-2003-01236

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