Publisher's Synopsis
Excerpt from Monetary Policy and Costs of Price Adjustment
The monetary authority is assumed to attempt to minimize these effects by varying the stock of money balances. The preferences of the monetary authority over paths for the money supply are shown to be time inconsistent as long as it takes time for the government to observe the aggregate va riables it wants to stabilize. This time inconsistency results from the effect future policies have on the impact of current disturbances which are observed only by the private seetor. This effect will not be taken into account by the monetary authorities in the future as they choose the money supply corresponding to future periods.
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