central banks - the issue of credibility and reputation：中央银行的信誉和声誉问题

Lecture 8,Central Banks - The Issue of Credibility and Reputation,This lecture addresses two issues:CredibilityThe distinction between rules and discretiona) credible commitmentsb) rules can be learned by private agents, discretion cannot,Lucas v Tinbergen,Tinbergen paradigm - discretionary policy can be used to meet set objectives.If there are n targets we need n independent instruments to satisfy targets Lucas critique - very act of discretion undermines its effectivenessA modest policy of rules would be more effective,The Leader - Follower paradigm,Lucas approach treats the economy as a collection of optimising agentsBut the government is also an optimising agentThe government can be treated as a leaderprivate agents are followersLeader-follower game (Stackelberg),Illustration of leader - follower game,At each date a speculator can raise domestic currency which is sold for foreign currency.He pays a fixed charge of c per transactionAssume that there is a limit to which the speculator can sell in each period - transactions or liquidation costsIf a devaluation occurs the benefit is per unit of domestic currency,leader - follower continued,If a devaluation occurs - profit is - ct; t=1,2,. and ct is the opportunity costGovernment has reserves of $RIt is forced to devalue when it runs out of reserves,Assumptions,For a given level of reserves, the government prefers maintaining the exchange rate to devaluationFor a given exchange rate it prefers more reserves to less2 $R 3/2 c 0At some point the government plays =1,Conclusion,Contrary to Barro-Gordon there will exist a period during which a zero inflation policy is credible because it pays even a weak government to build up a stock of good reputation.,Insights,Two-sided uncertainty leads to Stackelberg warfareStrong private sector may induce a stronger government to be tougher than necessary to convince t