Dynamic inconsistency and monetary policy management

Balaban, Georgiana and Vîntu, Denis (2010): Dynamic inconsistency and monetary policy management. Published in: Business Transformation through Innovation and Knowledge Management: An Academic Perspective No. 14th IBIMA Conference (23 June 2010): pp. 1681-1691.

Abstract

This paper studies the importance of the dynamic inconsistency of monetary policy. The paper is organized as follows: in the first part the concept of dynamic inconsistency is explained; the next sections analyse the the rules versus discretion dilemma and some solutions to counteract the dynamic inconsistency of monetary policy - delegate monetary policy to an independent and conservative central banker; offering to the central banker a performance contract, in which his salary is directly linked to the performance of some important macroeconomic variables such as GDP and inflation rate; inflation targeting strategy. The last section briefly presents the management of monetary policy in Romania after adoption of inflation targeting strategy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic inconsistency, rules, discretion, monetary policy management, inflation targeting
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Balaban, G. and Vîntu, D. (2010), ”Testing the nonlinearity of the Phillips Curve. Implications for monetary policy”, Theoretical and Apllied Economics, Volume XVII, No. 4 (545), pp. 107-120

http://store.ectap.ro/articole/463.pdf