@article{46fe40d295364697948057affc8de055,
title = "Dealing with Time Inconsistency: Inflation Targeting versus Exchange Rate Targeting",
abstract = "Adopting a single instead of multiple targets can be an effective way to overcome the classic time-inconsistency problem. The choice of a single mandate depends on the trade openness and the credibility. Reduced-form empirical results show as central banks become less credible, they are more likely to adopt a pegged exchange rate, and the tendency to peg depends on trade openness. In a model with “loose commitment,” as credibility falls, either an inflation target or a pegged exchange rate is more likely to be adopted. A relatively closed (highly open) economy would adopt an inflation target (exchange rate peg).",
keywords = "E30, E50, F40, commitment, exchange rate peg, inflation target, tie one's hands, time-inconsistency",
author = "Davis, {J. Scott} and Ippei Fujiwara and Jiao Wang",
note = "Funding Information: We thank the editor, Kenneth West, and two anonymous referees for many insightful comments and suggestions. We also have benefited from discussions with Mario Crucini, Richard Dennis, Chris Edmond, Jinill Kim, Marianio Kulish, James Hansen, Sylvain Leduc, Zheng Liu, Ricardo Nunes, Frank Smets, Mark Spiegel, and seminar and conference participants at the Federal Reserve Banks of Dallas, Boston, and San Francisco, Vanderbilt University, the Central Bank Modeling Workshop at the Reserve Bank of New Zealand, the 2015 Melbourne Macroeconomic Policy Meetings, and the 2017 SED Meetings in Edinburgh. The views presented here are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Dallas or the Federal Reserve System. Fujiwara gratefully acknowledges financial support from JSPS KAKENHI Grant-in-Aid for Scientific Research (A) Grant Number 15H01939. Wang is grateful for financial support from Australian Research Council Discovery Project 160102654. Publisher Copyright: {\textcopyright} 2018 The Ohio State University",
year = "2018",
month = oct,
doi = "10.1111/jmcb.12551",
language = "English",
volume = "50",
pages = "1369--1399",
journal = "Journal of Money, Credit and Banking",
issn = "0022-2879",
publisher = "Wiley-Blackwell",
number = "7",
}