Myopia,Discretion, and Commitment in a Two‐Period AS/AD Model |
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Authors: | Pavel S Kapinos |
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Institution: | 1. Department of Economics, Carleton College, 1 N College, Street, Northfield, MN 55057, USA;2. Division of Insurance and Research, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429, USA |
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Abstract: | A large body of pedagogical literature has recently emerged to place the New Keynesian framework for analyzing business cycle fluctuations and the conduct of monetary policy into undergraduate economics curricula. This article develops the graphical apparatus for the analysis of optimal monetary policy in the context of a two‐period model under alternative assumptions about the formation of inflationary expectations. It demonstrates that differences in assumptions about the formation of inflationary expectations translate into quite different conclusions regarding the optimal conduct of monetary policy. |
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Keywords: | A22 E52 E58 |
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