On two notions of imperfect credibility in optimal monetary policies

Abstract

We explore how outcomes of optimal monetary policy with loose commitment (Schaumburg and Tambalotti, 2007; Debortoli and Nunes, 2010) with the non-reoptimization probability of can be interpretable as outcomes of deeper optimal policy under sustainable plans (Chari and Kehoe, 1990) with -period punishment. In a standard monetary-policy framework, we show that, for any sufficiently high value of , there exists an integer such that impulse responses to the cost-push shock under each policy are similar to each other. Show more