Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76003 
Authors: 
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper No. 609
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal, timeless perspective, precommitment policy. By stabilizing output gap changes, the central bank imparts inertia into output and inflation that is absent under pure discretion. Even a fully optimizing (i.e., non-myopic) central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting.
Subjects: 
monetary policy
inflation targeting
targeting regimes
Document Type: 
Working Paper
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