Optimal commitment in monetary policy: credibility versus flexibility

Article Abstract:

Policymakers can eliminate an inflationary bias through a credible commitment to a policy that emphasizes zero inflation. Policymakers cannot realistically commit to a state-contingent policy rule because every contingency cannot be predicted. Policymakers must therefore make simple commitments that are indifferent to the state of the world. A partially independent conservative central banking institution can develop a credible, low-inflation monetary policy that is flexible enough to respond to contingencies.

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Optimal inflation targets, "conservative" central banks, and linear inflation contracts: comment

Article Abstract:

The state-contingent nature of the optimal monetary policy adopted by a conservative central bank in the persistence of employment as proposed by Lars Svensson may undermine its credibility according to Roel Beetsma and Henrik Jensen. The optimal rule, however, is possible with state-independent delegation incorporated into Svensson's model. Thus, the elimination of the state-contingent inflation bias allows the central bank to perform policy according to Svensson's rule.

Inflation (Finance), Inflation (Economics)

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Government revenue from financial repression

Article Abstract:

The way in which government revenue is affected by financial repression is studied. Financial repression refers to interest-rate restrictions in the domestic market and capital-flow restrictions in the international market. The revenue that results from repression is found by multiplying the difference between the domestic and foreign funds costs with the domestic stock of government debt. The research indicates that financial repression can lead to significant revenue.

Public finance

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