Announcements and Credibility of Monetary Policy,
Oxford-Economic-Papers; 48(4), October 1996, pages 673-80.
by Christian Schultz
AB: An infinitely repeated monetary policy game a la R. Barro
and D. Gordon (1983) is considered. Before the game starts the government
announces a policy rule. If there is a slight probability that government
is honest and a slight probability that the government makes mistakes,
then a sufficiently patient government will have average loss close to
its commitment loss in all sequentially rational equilibria of the infinitely
repeated game.