Optimalsustainablemonetarypolicy

In recentmonetarypolicyliterature,optimalcommitmentpolicyanditsvariantfroma timelessperspectivehavebeenstudiedwithemphasisonwelfaregainsfrompolicy commitment.Thesepolicies,however,involveatime-consistencyproblemcalleda stabilizationbias in forward-lookingmodels.WeanalyzeChariandKehoe’s[1990. Sustainableplans.JournalofPoliticalEconomy98,783–802]sustainableequilibrium and examine optimalsustainablepolicy, i.e.apolicymaker’sstrategyinthebest sustainableequilibrium.Thispapershowsthatsuchapolicybecomesconsistentwith the optimalcommitmentpolicyinsufficientlylaterperiods.Italsoshowsthatwhether the optimalsustainablepolicycanattaintheRamseyequilibriumoutcomedependson the magnitudeofshockshittingthemodeleconomy.Moreover,thepaperfindsa sustainablepolicythatattainshighersocialwelfarethandiscretionarypolicydoes