This paper revisits the classic discretion versus commitment debate when a policymaker issues signals and agents choose to ignore them or not. Besides responding with discretion to agents’ actions or committing to a plan ex ante, a policymaker can also choose an adaptation policy, where she commits after agents make learning decisions but before agents take actions. Two mechanisms are at work i...

In general, misspecified models can cause harm through suggesting policies that would in reality lead to destabilization of the economy as well as through limiting policy options and thus preventing the policymaker from achieving the first-best outcome. This paper specifically examines whether the choice of credit market frictions in new-Keynesian DSGE models matters in the context of monetary ...

In many countries, the monetary policy instrument remains unchanged for a long period and shows infrequent responses to exogenous shocks. The purpose of this paper is to provide a new explanation on why the central bank’s policy instrument remains so unchanged. In the following analysis, we explore how Knightian uncertainty affects optimal monetary policy. We apply the Choquet expected decision...

This paper models influence activity as a dynamic game between special interest groups and a policymaker whose preferences are not known with certainty. In case of a single lobby, in a two—period model I show that the policymaker overstates her benevolence in the first period to build a reputation for being “honest” in order to withhold more rents in the second period. The lobby, recognizing th...

We study political activism by several interest groups with private signals. When their ideological distance to the policymaker is small, a “low-trust” regime prevails: agents frequently lobby even when it is unwarranted, taking advantage of the conŽ rmation provided by others’ activism; conversely, the policymaker responds only to generalized pressure. When ideological distance is large, a “hi...

Deliverable Name Report on policy recording exercise, including policy typology and effectiveness and list of further policymaker targets

This paper describes the design and prototype implementation of a comprehensive system for securing Internet e-mail transparently, so that the only user intervention required is the initial setup and speciication of a trust policy. Our system uses the PolicyMaker trust management engine for evaluating the trustworthiness of keys, in particular whether the given binding between key and name is v...