European Parliament Library

Optimal Monetary Policy with Overlapping Generations of Policymakers, Maral Shamloo

In this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy
Table Of Contents
Contents; Figures; 1 Introduction; 1.1 Related Literature; 2 Optimal Monetary Policy: The New Keynesian Framework; 2.1 Optimal Monetary Policy and Stabilization Bias; 2.2 Optimal Response under Discretion; 2.3 Optimal Response under Commitment; 3 Overlapping Generations of MPC Members; 3.1 A Two-Member MPC; 3.2 The Bargaining Process; 3.2.1 The Bargaining Problem; 3.2.2 The Utilitarian Solution and the Stationary Equilibrium; 3.3 n-Member Committee; 4 Utilitarian Bargaining vs. Voting; 5 Calibration and Simulation Results; 5.1 Impulse Responses to Independent Shocks
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (37 p.)
Specific Material Designation
Form Of Item

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