Jean-Pascal Bénassy
- Published in print:
- 2011
- Published Online:
- April 2015
- ISBN:
- 9780195387711
- eISBN:
- 9780190261405
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:osobl/9780195387711.003.0019
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter analyzes the issues of time consistency and credibility in fiscal and monetary policy making. It briefly describes the article by Finn Kydland and Edward Prescott which introduced the ...
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This chapter analyzes the issues of time consistency and credibility in fiscal and monetary policy making. It briefly describes the article by Finn Kydland and Edward Prescott which introduced the dynamic consistency problem. It provides a simple characterization of the dynamic consistency problem and then uses capital taxation as an example to demonstrate the issue of the dynamic consistency problem. It also studies how the problem of dynamic consistency can interfere with the design of monetary policy regarding inflationary bias, and provides possible solutions to these problems.Less
This chapter analyzes the issues of time consistency and credibility in fiscal and monetary policy making. It briefly describes the article by Finn Kydland and Edward Prescott which introduced the dynamic consistency problem. It provides a simple characterization of the dynamic consistency problem and then uses capital taxation as an example to demonstrate the issue of the dynamic consistency problem. It also studies how the problem of dynamic consistency can interfere with the design of monetary policy regarding inflationary bias, and provides possible solutions to these problems.
