A reputation strategic model of monetary policy in continuous-time

Jingyuan LI, Yongming LIU, Guoqiang TIAN

Research output: Journal PublicationsJournal Article (refereed)peer-review

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

Keywords

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

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