Theoretical and Applied Economics
No. 10 / 2008 (527)
Optimality, Rational Expectations and Time Inconsistency Applied to Inflation Targeting Strategy
Marius Andrei Zoican
Academy of Economic Studies, Bucharest
Abstract. The purpose of this paper is to analyse the characteristics of an inflation targeting strategy, using the Barro-Gordon model specific tools. This paper uses the initial Barro-Gordon concepts of inflationary social costs and benefits, adding a new dimension generated by the cost of output deviating from the potential level. The main contribution of this paper is the exhaustive study of the time inconsistency problem generated by the very existence of a policymaker-established inflation rate. The mathematic simulation of a model allowed a complete analysis of several parameters’ influence (parameters such as the optimal rate of inflation, the discount rate, the importance structure of inflationary social cost) on the applicable range of the target inflation rate, range that guarantees that the policymakers have no incentive to break their own rules, or at least this incentive is somewhat inferior to the future cost of doing so.
Contents
Corporate Rating. Multidimensional Perspective in the Context of the Differentiation in Terms of Localization Criteria. Empirical Perspective on Developed versus Emerging Countries
Optimality, Rational Expectations and Time Inconsistency Applied to Inflation Targeting Strategy
Optimizing the Banking Activity Using Assets & Liabilities Management
The Dimensions of Organizational Intelligence in Romanian Companies – A Human Capital Perspective
An Analysis of Closed-end Fund Puzzle for Emerging Capital Markets
The Influence of the Conjunctural Factors Toward the Reengineering of Organization
Current Approaches to the Establishment of Credit Risk Specific Provisions
Mobil Digital Management for SME’s
Growth Strategies in the Publishing Industry through the Betterment of Managerial Techniques