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Optimal Monetary Policy with Overlapping Generations of Policymakers

Optimal Monetary Policy with Overlapping Generations of Policymakers by Maral Shamloo
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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.
International Monetary Fund; February 2010
36 pages; ISBN 9781452752068
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Title: Optimal Monetary Policy with Overlapping Generations of Policymakers
Author: Maral Shamloo