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Myopia, Discretion, and Commitment in a Two‐Period AS/AD Model
Author(s) -
Kapinos Pavel S.
Publication year - 2014
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2012.174
Subject(s) - discretion , period (music) , economics , new keynesian economics , monetary policy , context (archaeology) , business cycle , macroeconomics , inflation (cosmology) , keynesian economics , monetary economics , political science , law , theoretical physics , paleontology , physics , biology , acoustics
A large body of pedagogical literature has recently emerged to place the New Keynesian framework for analyzing business cycle fluctuations and the conduct of monetary policy into undergraduate economics curricula. This article develops the graphical apparatus for the analysis of optimal monetary policy in the context of a two‐period model under alternative assumptions about the formation of inflationary expectations. It demonstrates that differences in assumptions about the formation of inflationary expectations translate into quite different conclusions regarding the optimal conduct of monetary policy.