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On the Optimality of Transparent Monetary Policy
We analyze the optimal design of monetary rules. We suppose there is an agreed upon social welfare function that depends on the randomly fluctuating state of the economy and that the monetary authority has private information about that state. We suppose the government can constrain the policies of the monetary authority by legislating a rule. In general, well-designed rules trade-off the need to constrain policymakers from the standard time consistency problem arising from the temptation fordoi:10.21034/wp.613 fatcat:jbymzhqvn5c6dfxco7rchhwqma