A government that promises low inflation has every reason to break that promise later

Kydland and Prescott showed that a policy which looks optimal in advance can stop being optimal once people have already adjusted their behaviour based on believing it — tempting policymakers to renege. Their 1977 work on this 'time inconsistency' problem helped win them the Nobel Prize and reshaped how central banks think about credibility.

— Finn Kydland, Edward Prescott, Rules Rather Than Discretion: The Inconsistency of Optimal Plans — Journal of Political Economy, 1977

One credited idea per card. No filler. Swipe the rest in Savvy.

Keep swiping — it's free Works right in your browser. No app store needed.

More Economics

All Economics cards →
More from Finn E. Kydland →
More from Edward C. Prescott →

Five ideas worth knowing, every week

The week's best cards and a puzzle, credited as always. Free, unsubscribe any time.