Optimal accommodation by strong policymakers under incomplete information

Alex Cukierman, Nissan Liviatan

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the optimal behavior of a policymaker who is able to precommit (labelled 'strong') when the public entertains the possibility that he is either strong or weak (unable to precommit). The main result is that, in the presence of doubts about their type, it is optimal, even for strong policymakers, to partially accommodate inflationary expectations. This contrasts with Vickers (1986) who finds that when strength is conceived in terms of the relative concern for employment the strong policymaker inflates less under incomplete than under full information. The paper also provides a theory of endogenous announcements.

Original languageEnglish
Pages (from-to)99-127
Number of pages29
JournalJournal of Monetary Economics
Volume27
Issue number1
DOIs
StatePublished - Feb 1991

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