Dynamic commitment and incomplete policy rules

Joseph G. Haubrich, Joe Ritter

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Considering the dynamics of commitment highlights some neglected features of time inconsistency problems. We modify the standard rules-versus-discretion question in three ways: (1) A government that does not commit today retains the option to do so tomorrow, (2) the government's commitment capability is restricted to a class of simple rules, and (3) the government's ability to make irrevocable commitments is restricted. Three results stand out. First, the option to wait makes the incumbent regime (rules or discretion) relatively more attractive. Second, the option to wait means that increased uncertainty makes the incumbent regime more attlwactive. Third, because the commitment decision takes place in "real time," policy choice displays hysteresis.

Original languageEnglish (US)
Pages (from-to)766-784
Number of pages19
JournalJournal of Money, Credit and Banking
Volume32
Issue number4
DOIs
StatePublished - Nov 2000
Externally publishedYes

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