Norges Bank examines time inconsistency models
A Norges Bank paper published on Monday proposes a method for addressing the time inconsistency problem in monetary policy.
Time inconsistency results when a decision maker's preferences change over time, such that what is preferred at one point in time conflicts with what is preferred at a second point in time. It can cause the public to lose credibility in a central bank.
The existing macroeconomic literature takes two different approaches to optimal policy plans subject to time-inconsistency
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