Optimal Monetary Policy Under Uncertainty
Recently there has been a resurgence of interest in the study of optimal monetary policy under uncertainty. This book provides a thorough survey of the literature that has resulted from this renewed interest. The authors ground recent contributions on the ‘science of monetary policy’ in the literature of the 1970s, which viewed optimal monetary policy as primarily a question of the best use of information, and studies in the 1980s that gave primacy to time inconsistency problems. This broad focus leads to a better understanding of current issues such as discretion versus commitment, target versus instrument rules, and the merits of delegation of policy authority.
Bliss [Bliss, C., 2008. Multiple equilibrium in the Diamond capital model. Economics Letters 100, 143–145] finds numerically that the Diamond OLG model can have uncountably many steady states. We use log preferences and show analytically that a continuum of steady states can still exist.