This paper investigates the effects of wage indexation on the time-consistent level of inflation. Departing from previous work on time-consistent policy, we study a structural model of the economy. Indexation reduces the cost of inflation, which is inflationary, and steepens the Phillips curve,...

We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the...

This paper studies optimal fiscal policy in an economy where heterogeneous agents with uncertain lifetimes coexist. We show that some plausible social welfare functions lead to time-inconsistent optimal plans, and we suggest restrictions on social preferences that avoid the problem. The...

This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. It suggests that this problem originates in the assumption that agents have rational expectations and proposes several alternative restrictions on expectations that allow the monetary authority...

Self-control devices, such as rehabilitation programs, group commitment, and informal fines, can make time-inconsistent smokers better off. Health economists have used this result to argue in favor of cigarette taxes that restrain smoking. However, taxes alone are not Pareto-improving overall,...

We analyze two monetary economies - a cash-credit good model and a limited participation model. In our models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. We define and analyze Markov equilibrium in these economies. We show that there is no time...

We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...

We extend the semi-parametric estimation method for dynamic discrete choice models using Hotz and Miller's (1993) conditional choice probability (CCP) approach to the setting where individuals may have hyperbolic discounting time preferences and may be naive about their time inconsistency. We...

This paper considers the question of under what circumstances a new environmental regulation should "phase in" gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while...

When consumers exhibit present bias and are time-inconsistent, the standard solution to market failures caused by externalities--Pigouvian pricing--is suboptimal. I investigate policies aimed at externalities for time-inconsistent consumers. Welfare-maximizing policy in this case includes an...