Rules, Discretion and Reputation in a Model of Monetary Policy

• DOI: 10.3386/w1079
• Publication Date: 2007-10-23T16:59:49Z
• Authors: Robert Barro; David Gordon

Rules, Discretion and Reputation in a Model of Monetary Policy Abs tractIn discretionary regime the monetary authority can print more money create inflation than people expect.But, although these surprises have some benefits, they cannot arise systematically equilibrium when understand policymakor's incentives form their expectations accordingly.Because policymaker has power to shocks ex post, growth rates prices turn out be higher otherwise.Therefore, enforced commitments (rules) for behavior improve matters.Given repeated interaction between private agents, it is possible that reputational forces substitute formal rules.Here, we develop an example where out- comes weighted averages those from discretion ideal rule.In particular, look like under discount rate high.