A quantitative analysis of optimal sustainable monetary policies |
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Institution: | 1. Department of Mathematics, Shanghai Normal University, Shanghai, 200234, China;2. Department of Mathematics, Shanghai Institute of Technology, Shanghai, 201418, China |
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Abstract: | This study examines the quantitative properties of optimal sustainable monetary policies using a monetary model with a stabilization bias. As in Kurozumi (2008), the optimal sustainable policy is a strategy considered in the absence of commitment technologies; however it is implemented following an optimal quasi-sustainable policy derived by assuming that the commitment technologies are present. This study finds that solving for the policy function of the optimal quasi-sustainable policy yields a result basically identical to the Ramsey-optimal commitment policy under a set of parameters commonly used in the literature. The simulation shows two further results: policymakers have incentive to deviate from the Ramsey-optimal commitment policy when the lagged output gap is large and the optimal quasi-sustainable policy endogenously diminishes the steadfastness of policymakers׳ commitment. |
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Keywords: | Optimal monetary policy Time inconsistency Sustainable plans Timeless perspective E52 E58 E61 |
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