Abstract

The central bank's preferences toward stimulating economic activity versus fighting inflation may vary from period to period. This paper investigates the distinction between variability and predictability of the monetary authority's preferences in the context of a monetary policy game. We examine the impact that changes in the public's forecast accuracy would have on the monetary authority's behavior. Specifically, do fixed-growth rules or discretion yield higher ex ante payoffs to the monetary authority when the predictability of policymaker preferences changes?

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