| Abstract |
Jensen (1994a) finds that loss of monetary discretion leads to lower welfare. However, by extending his model we show that if real base money holdings are relatively low, as is likely to be the case for modern economics, a zero-inflation rule may well be preferable to monetary discretion. If the emphasis on achieving the output and public spending targets falls, a zero-inflation rule is more likely to be preferred. The increased support for binding policy rules thus conforms with a less tolerant attitude towards inflation.
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