[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-321277-105":59,"doc-detail-321277-en":130},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":123,"head_meta":125,"extra_data":127,"updated_unix":129},105,"en","time-consistent-rules-in-monetary-and-fiscal-policy-commentary","Time-Consistent Rules in Monetary and Fiscal Policy - Commentary","","The commentary explains how policy effects can be distorted by expectations about whether monetary and fiscal policies will remain unchanged. When households and firms anticipate possible future revisions, their decisions today adjust to that uncertainty, weakening the intended macroeconomic outcomes. It illustrates the role of commitment and time inconsistency in policy design and discusses a strategy to reduce negative effects by combining policy rules with credible, tough penalties for amendments or violations.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/time-consistent-rules-in-monetary-and-fiscal-policy-commentary/321277/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/time-consistent-rules-in-monetary-and-fiscal-policy-commentary/321277.png","ImageObject",300,407,{"name":92,"@type":93},"Levi","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-23","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":52},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"Why can government policy fail to produce its intended effects?","Question",{"text":112,"@type":113},"Because the public forms expectations about how strictly policy will be enforced or whether it will change in the future, which alters private decisions today.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"What does commitment mean in the context of optimal policy?",{"text":117,"@type":113},"Commitment means policymakers can credibly keep the policy constant, allowing households and firms to base decisions on that stability rather than on the risk of later changes.",{"name":119,"@type":110,"acceptedAnswer":120},"How does time inconsistency affect policymakers’ choices?",{"text":121,"@type":113},"Optimal policies adopted in the past may no longer appear optimal from the viewpoint of future policymakers, creating incentives to alter them and leading markets to adjust their expectations.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},321277,1790156202,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":52,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":139,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":140,"faqs":141,"seo_title":142,"seo_description":67,"update_tm":143,"read_time":144,"preview_page_count":4},7971461740909,"https://ap-avatar.wpscdn.com/davatar_155a257f0dc6eb9ab79c44ca47cae57d","# Time-Consistent Rules inMonetary and Fiscal Policy\n\nDaniel Carroll  \nThe intended effects of a government policy can be distorted by the public's expectations about how strictly it will beenforced.If households and businesses cannot be certain that a policy will remain unchanged over its scheduled tenure,they will adjust their response to it to reflect this uncertainty.One way of mitigating the uncertaintly is to add rules to newpolicies when they are enacted that would make altering the policies very difficult in the future.  \nWhen it comes to government finance,it's not just lawsand policies about taxes,spending,or inflation that affectmacroeconomic outcomes like growth and unemployment.Expectations matter,too.Beliefs about how the future willunfold and the way that the government will react changewhat can happen today.Expectations matter both forcentral banks,which manage monetary policy,and forgovernment executives and legislators,who set fiscal policy.  \nThe Federal Reserve learned its lesson on expectations in theearly 1980s,when Chairman Volcker decided to bring inflationunder control.That task required resetting market inflationexpectations,and he had to undertake contractionarymonetary policy in order to do it.The lesson was demon-strated recently for fiscal policy in European sovereigndebt markets,after market confidence in the ability orwillingness of some countries to repay their debt obligationseroded,resulting in sudden spikes in interest rate spreads.  \nIt is natural to think of information fowing from the past tothe present and from the present to the future.Whathappens today obviously impacts what will happentomorrow.But expectations flow in the opposite direction.For example,current nominal interest rates are known todepend on two things:the real interest rate today,whichis governed by people's preferences and the economicresources available,and what inflation is expected to be inthe future(figure 1).This dependence ties a government'spolicy choices in the here and now to possible future out-comes through market expectations.Because expectations  \nmatter,it is critical that policymakers be mindful of howtheir actions shape market beliefs.  \nThe subtle link backward from the future to the present andits impact on optimal policy have powerful implications forgovernment.In a well-functioning democracy,no electedofficial's position is guaranteed,and with each election cyclesome new leaders are elected and some incumbents removed.In contrast,government policy is typically designed to be ineffect for a long period,one that contains several elections.New policymakers may have the power to extensively alteror even completely undo the policies of their predecessors.Incumbents therefore cannot guarantee that the policies theycreate will be maintained by future governments.  \nIf households and businesses cannot be certain that a policywill remain unchanged over its scheduled tenure,theirresponse to the policy will adjust to reflect this uncertainty.As a consequence,the outcome policymakers intend toachieve may not be what occurs.Election turnover,ahealthy feature of a democracy,creates a difficulty forpolicymaking because the current government cannotcommit the future government to carry on its policies.  \nThis Commentary discusses how the inability to commit toa policy alters market expectations,and how those expec-tations distort optimal policy.It also points out a generalstrategy for mitigating the negative effects arising from theinability to commit:specifically,combining policy rules withtough penalties for violating or amending those rules.  \nCommitment,Expectations,and Optimal PolicyIn their Nobel-prize-winning paper,Finn Kydland andEd Prescott showed how optimal policy crucially dependsupon whether or not the policymaker can commit.Whena policymaker can commit,households and businesses canrely on the policy remaining constant,which helps themmake decisions about everything,like how much incometo save or how ma","cbCaiiyRMNfL92ZK","https://ap.wps.com/l/cbCaiiyRMNfL92ZK","pdf",1475364,"English","# Commitment, Expectations, and Optimal Policy\n## Time inconsistency in monetary and fiscal conduct\n## Expectations, uncertainty, and policy effectiveness","[{\"question\":\"Why can government policy fail to produce its intended effects?\",\"answer\":\"Because the public forms expectations about how strictly policy will be enforced or whether it will change in the future, which alters private decisions today.\"},{\"question\":\"What does commitment mean in the context of optimal policy?\",\"answer\":\"Commitment means policymakers can credibly keep the policy constant, allowing households and firms to base decisions on that stability rather than on the risk of later changes.\"},{\"question\":\"How does time inconsistency affect policymakers’ choices?\",\"answer\":\"Optimal policies adopted in the past may no longer appear optimal from the viewpoint of future policymakers, creating incentives to alter them and leading markets to adjust their expectations.\"}]","Time-Consistent Rules in Monetary and Fiscal Policy - Commentary | PDF",1789958867,13]