Working Papers

2001-19 | August 2001

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Precommitment, the Timeless Perspective, and Policymaking from Behind a Veil of Uncertainty

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Woodford (1999) develops the notion of a "timelessly optimal" pre-commitment policy. This paper uses a simple business cycle model to illustrate this notion. We show that timelessly optimal policies are not unique and that they are not necessarily better than the time-consistent solution. Further, we describe a method for constructing optimal pre-commitment rules in an environment where the policymaker does not know the initial state of the economy. This latter solution is useful for characterizing the benefits policymakers extract through exploiting initial conditions.

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