Optimal monetary policy without commitment
نویسندگان
چکیده
Most of the results of optimal taxation literature in Ramsey framework are derived under the assumption of commitment. Commitment is usually defined as ability of a government to bind future policy choices. This assumption is restrictive. A government, even a benevolent one, may choose to change its policies from those promised at an earlier date. The first formalization of the notion of time-inconsistency is due to Kydland and Prescott (1977) who showed how timing of government policy may change economic outcomes. Furthermore, the equilibrium without commitment can lead to lower welfare for the society than when a government can bind its future choices.
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