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We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more...
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The new Keynesian literature typically makes the assumption that firms always have to satisfy demand. Because this assumption is at odds with profit-maximizing behavior under Calvo pricing when long-run inflation is positive, we present a new Keynesian model that relaxes this assumption. Our...
Persistent link: https://www.econbiz.de/10012915784
This paper extends the concept of discretionary equilibrium for linear-quadratic models with rational expectations by allowing for linear non-Markovian strategies of the policy-maker and the other agents in the economy. Applying this concept to the standard New Keynesian framework, we show that...
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