We discuss the issue of time consistency of monetary policy. We develop a simple and intuitive procedure to derive analytically the unconditionally optimal (UO) policy in a general linear-quadratic set-up, a perspective stressed by Taylor (1979) and Whiteman (1986). We compare the UO perspective...

This paper analyzes educational choices and political support for subsidies to higher education in the presence of a time-consistency problem in income redistribution. There may be political support for so generous subsidization that it motivates the median voter to obtain higher education. As a...

This paper provides an introduction, with critical interpretations, to the use of hyperbolic discounting as a model of behavior for the consumption of addictive goods. The exponential and hyperbolic discounting models are carefully reviewed, with particular emphasis on the implications for time...

Corruption among central banks induces distorted policies by, first, increasing the inflation bias and, second, potentially inducing a pro-cyclical adjustment of employment. In response to a negative supply shock a corrupt central banker is tempted to decrease money supply. In this case, he...

This paper analyses the interaction between fiscal and monetary policy using the original Barro and Gordon (1983) model extended to include fiscal policy, dynamics and the level of institutional quality, measured as bureaucratic corruption. It is found that delegating monetary policy to an...

Hyperbolic discounting models are widely seen as implying that consumers do not save enough, in accordance with the observed low rates of savings of some households. This paper qualifies this view by showing that hyperbolic consumers may ‘oversave’ in the short run. The result...

This paper provides a theory of government intervention, such as government ownership, regulation, mandatory public schooling, subsidies, and industrial policy, as an optimal policy response due to the inability to commit not to expropriate private investment or bail agents out. If the...