We are grateful to Alan Carruth, Stephen Hall, Richard Mash, John Muellbauer, Kalin Nikolov and Adrian Pagan for helpful comments and suggestions. The latter part of the article uses a solution method suggested by Andrew Blake (‡) and we are very grateful to him for discussing this with us in detail. The article has also considerably benefited from the comments of Mike Wickens and two anonymous referees. All errors remain the responsibility of the authors. We are grateful to the Leverhume Trust for financial support under grant no. F/108 519A, ‘EMU and European Macroeconomic Policy in a Global Context.’
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The Effect of Discounting on Policy Choices in Inflation Targeting Regimes†
Article first published online: 23 JAN 2006
DOI: 10.1111/j.1468-0297.2006.01056.x
Additional Information
How to Cite
Henry, S., Satchi, M. and Vines, D. (2006), The Effect of Discounting on Policy Choices in Inflation Targeting Regimes. The Economic Journal, 116: 266–282. doi: 10.1111/j.1468-0297.2006.01056.x
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Publication History
- Issue published online: 23 JAN 2006
- Article first published online: 23 JAN 2006
- Submitted: 2 October 2001 Accepted: 13 September 2004
- Abstract
- Article
- References
- Cited By
This article 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 preferences of the monetary authority with respect to inflation and output stability. We show that when the authority discounts the future, outcomes become more sensitive to its 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.