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Discretion vs. Timeless Perspective Policy-Making: the Role of Input-Output Interactions

Petrella, Ivan and Rossi, Raffaele and Santoro, Emiliano (2012) Discretion vs. Timeless Perspective Policy-Making: the Role of Input-Output Interactions. Working Paper. UNSPECIFIED.

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Abstract

This paper contributes to a recent debate about the structural and institutional conditions under which discretionary monetary policy-making may be superior to timeless perspective. To this end, we formulate an input-output economy in which firms technology employs both labor and intermediate goods produced by all firms in the economy. Unlike price stickiness, input materials reduce the slope of the New Keynesian Phillips curve, while leaving the policy maker's preference for consumption stabilization unaffected. Strategic complementarities stemming from realistic degrees of input-output interactions greatly amplify the loss of social welfare under timeless perspective, even for small departures of the economy from its steady state. By contrast, price rigidity proves to be ineffective at improving the performance of discretion relative to timeless perspective.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Input-Output Economy ; Monetary Policy ; Discretion ; Timeless Perspective
Subjects: H Social Sciences > HB Economic Theory
Departments: Lancaster University Management School > Economics
ID Code: 60043
Deposited By: ep_importer_pure
Deposited On: 16 Nov 2012 11:48
Refereed?: No
Published?: Published
Last Modified: 16 Nov 2012 13:17
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/60043

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