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The Stability Properties of Monetary Constitutions

The Stability Properties of Monetary Constitutions Abstract The financial crisis brought about a higher degree of monetary policy unpredictability. To anchor expectations and promote nominal stability, there is a need for predictable monetary rules or stable constitutions. This paper’s purpose is to define the general expectational properties that monetary constitutions should possess to work as coordination devices. I use Buchanan’s predictability criterion, as well as the expectational monetary transmission mechanism, to propose that monetary constitutions should be considered stable as long as they contain dynamics allowing self-reinforcing expectations of monetary neutrality. Self-reinforcement of expectations is an integral property of monetary constitutions for them to be agents of coordination and therefore stable. I find that these expectational properties are consistent with the stability properties established in the constitutional literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal des Économistes et des Études Humaines de Gruyter

The Stability Properties of Monetary Constitutions

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Publisher
de Gruyter
Copyright
Copyright © 2016 by the
ISSN
2194-5799
eISSN
2153-1552
DOI
10.1515/jeeh-2015-0011
Publisher site
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Abstract

Abstract The financial crisis brought about a higher degree of monetary policy unpredictability. To anchor expectations and promote nominal stability, there is a need for predictable monetary rules or stable constitutions. This paper’s purpose is to define the general expectational properties that monetary constitutions should possess to work as coordination devices. I use Buchanan’s predictability criterion, as well as the expectational monetary transmission mechanism, to propose that monetary constitutions should be considered stable as long as they contain dynamics allowing self-reinforcing expectations of monetary neutrality. Self-reinforcement of expectations is an integral property of monetary constitutions for them to be agents of coordination and therefore stable. I find that these expectational properties are consistent with the stability properties established in the constitutional literature.

Journal

Journal des Économistes et des Études Humaines – de Gruyter

Published: Dec 1, 2016

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