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Optimal Continuation versus the Timeless Perspective in Monetary Policy
Author(s) -
JENSEN CHRISTIAN,
MCCALLUM BENNETT T.
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00321.x
Subject(s) - timeless , continuation , credibility , perspective (graphical) , period (music) , monetary policy , economics , mathematical economics , computer science , political science , macroeconomics , psychology , law , artificial intelligence , philosophy , neuroscience , circadian rhythm , programming language , aesthetics
The timeless‐perspective approach suggests that policymakers implement in each period policy actions conforming to a rule that would have been fully optimal to adopt in the distant past. A motivating advantage is that policy henceforth would continue by recommending the same optimality conditions if reconsidered, thereby enhancing credibility. We argue that continuation can alternatively be achieved with better results, on average, in terms of policymakers' objectives, by implementing in each period the time‐invariant policy that is optimal from the viewpoint of the contemporary understanding of objectives and constraints, but while ignoring the conditions that happen to prevail at the time.