haku: @author Ellis, C. J. / yhteensä: 2
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| Tekijä: | Ellis, C. J. Holden, S. |
| Otsikko: | Optimal contract length in a reputational model of monetary policy |
| Lehti: | European Economic Review
1997 : FEB, VOL. 41:2, p. 227-243 |
| Asiasana: | MONETARY POLICY CONTRACTS PRIVATE SECTOR INFLATION OPTIMIZATION |
| Kieli: | eng |
| Tiivistelmä: | A reputational model of monetary policy is developed with endogenous contract length. In choosing contract length, private sector agents trade off recontracting costs against the expected costs resulting from trading under contracts based on incorrect inflation expectations. Due to externality, however, the private and socially optimal contract lengths differ. Private agents do not consider the effect of contract length on the surprise inflation/output trade-off when selecting individual contract length. This results in an excessive equilibrium inflation rate in a reputational model monetary policy. The socially optimal outcome may be achieved by public policies that reduce recontracting costs. |
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