Reputation in a Model of Monetary Policy with Incomplete Information / Robert J. Barro.

Format:

Book

Author/Creator:

Barro, Robert J.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1794.

NBER working paper series no. w1794

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

Previous models of rules versus discretion are extended to include uncertainty about the policymaker's "type." When people observe low inflation, they raise the possibility that the policymaker is committed to low inflation (type 1). This enhancement of reputation gives the uncommitted policymaker (type 2) an incentive to masquerade as the committed type. In the equilibrium the policymaker of type 1 delivers surprisingly low inflation -- with corresponding costs to the economy -- over an extended interval. The type 2 person mimics this outcome for awhile, but shift seventually to high inflation. This high inflation is surprising initially, but subsequently becomes anticipated.

Notes:

Print version record

1986.