A reputation strategic model of monetary policy in continuous-time

Jingyuan LI, Yongming LIU, Guoqiang TIAN

Research output: Journal PublicationsJournal Article (refereed)

2 Citations (Scopus)

Abstract

This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.
Original languageEnglish
Pages (from-to)523-533
Number of pages11
JournalJournal of Macroeconomics
Volume31
Issue number4
DOIs
Publication statusPublished - 1 Dec 2009
Externally publishedYes

Fingerprint

Continuous time
Monetary policy
Rational expectations equilibrium
Time horizon
Finite horizon
Time inconsistency
Robustness
Optimal stopping
Trigger

Keywords

  • Continuous model
  • Monetary policy
  • Reputation
  • Time consistency problem

Cite this

LI, Jingyuan ; LIU, Yongming ; TIAN, Guoqiang. / A reputation strategic model of monetary policy in continuous-time. In: Journal of Macroeconomics. 2009 ; Vol. 31, No. 4. pp. 523-533.
@article{7bf84cc73f8e4ea3b2529bce76b0fce6,
title = "A reputation strategic model of monetary policy in continuous-time",
abstract = "This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.",
keywords = "Continuous model, Monetary policy, Reputation, Time consistency problem",
author = "Jingyuan LI and Yongming LIU and Guoqiang TIAN",
year = "2009",
month = "12",
day = "1",
doi = "10.1016/j.jmacro.2008.12.003",
language = "English",
volume = "31",
pages = "523--533",
journal = "Journal of Macroeconomics",
issn = "0164-0704",
publisher = "Elsevier BV",
number = "4",

}

A reputation strategic model of monetary policy in continuous-time. / LI, Jingyuan; LIU, Yongming; TIAN, Guoqiang.

In: Journal of Macroeconomics, Vol. 31, No. 4, 01.12.2009, p. 523-533.

Research output: Journal PublicationsJournal Article (refereed)

TY - JOUR

T1 - A reputation strategic model of monetary policy in continuous-time

AU - LI, Jingyuan

AU - LIU, Yongming

AU - TIAN, Guoqiang

PY - 2009/12/1

Y1 - 2009/12/1

N2 - This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.

AB - This paper develops a reputation strategic model of monetary policy with a continuous finite or infinite time horizon. By using the optimal stopping theory and introducing the notions of sequentially weak and strong rational expectation equilibria, we show that the time inconsistency problem may be solved with trigger reputation strategies not only for stochastic but also for non-stochastic settings even with a finite horizon. We show the existence of stationary sequentially strong rational expectation equilibrium under some condition, and there always exists a stationary sequentially weak rational expectation equilibrium. Moreover, we investigate the robustness of the sequentially strong rational expectation equilibrium behavior solution by showing that the imposed assumption is reasonable.

KW - Continuous model

KW - Monetary policy

KW - Reputation

KW - Time consistency problem

UR - http://commons.ln.edu.hk/sw_master/2720

U2 - 10.1016/j.jmacro.2008.12.003

DO - 10.1016/j.jmacro.2008.12.003

M3 - Journal Article (refereed)

VL - 31

SP - 523

EP - 533

JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

SN - 0164-0704

IS - 4

ER -