The Optimal Degree of Discretion in Monetary Policy

@article{Athey2003TheOD,
  title={The Optimal Degree of Discretion in Monetary Policy},
  author={Susan Athey and Andrew G. Atkeson and Patrick J. Kehoe},
  journal={European Central Bank Research Paper Series},
  year={2003}
}
How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the economy's randomly fluctuating state. The monetary authority has private information about that state. Well designed rules trade off society's desire to give the monetary authority discretion to react to its private information against society's need to prevent that authority from giving in to the temptation to… Expand
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