Evaluate the collective function of references cited together in a given text segment.
Classify their combined role into one of the following categories: 'method', 'background', or 'result'.

Text:multiple equilibria, see Albanesi et al. (2003), King and Wolman (2004) and Blake and Kirsanova (2012), and a simple New Keynesian model is not appropriate to investigate many consequences of policy delegation. As there is no particular reason to assume one equilibrium will prevail any more than another, even if the delegation schemes behave locally as intuition might suggest globally could be a different matter. The central questions addressed in this paper follow on from this. How do delegation schemes affect the likelihood of obtaining multiple equilibria in more realistic models? If multiplicity survives, how should we quantify the welfare implications of choosing one of these delegation schemes? Can any of these schemes affect the likelihood that economic agents successfully coordinate on the best equilibrium? To address these questions we study a version of the familiar sticky price model modified to incorporate capital accumulation (Sveen and Weinke, 2005; Woodford, 2005). This model contains all the features as at the heart of many DSGE models used in policy analysis which makes it a ‘representative agent’ for our policy analysis. Moreover, we choose a set up which encompasses the ‘worst case’ scenario: there are expectation traps and economic agents may be more likely to coordinate on the worst equilibrium (Dennis and Kirsanova, 2012). We confirm the previous results that all these delegation schemes can improve social welfare, but we show that they only unequivocally improve welfare if the economy remains in the best equilibrium. At the same time, we demonstrate that none of the considered delegation schemes eliminates expectation traps, moreover, new equilibria arise under delegation. Whether there is a gain associated with a transition to a delegation scheme will depend on which equilibrium under the original unmodified objective one starts from and to which equilibrium one transitions. More encouragingly, all delegation schemes reduce the range of parameters which ensure the unique worst equilibrium, thus increasing the likelihood of coordinating on the Pareto-preferred equilibrium. We also argue that a delegation scheme can change the way how agents coordinate on an equilibrium. In particular, we show that price level targeting increases the likelihood that the best equilibrium realizes. The paper is organized as follows. In the next section we outline the model and discuss the calibration. Section 3 recapitulates the analysis in Blake and Kirsanova (2012) for our sticky-price model with capital, showing how multiplicity arises when monetary policy is conducted under discretion and with an unmodified monetary policy objective.
Category: