How square is the policy frontier ?

This paper assesses the implications of discounting on a result derived by Bean (1998): that in a model of monetary policy where policy acts with a lag, the outcomes of monetary policy are very similar for a wide range of weightings of the (non-discounting) monetary authority's objective function, with respect to inflation stability versus output stability. We show that when the authority discounts the future, outcomes become more sensitive to preferences, and that it is important to take the discount rate into account when examining the question of how the authority's remit should be specified.