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In: Economics

What is time-inconsistency problem and what role does it play in the debate between supporters of...

What is time-inconsistency problem and what role does it play in the debate between supporters of discretion and supporters of rules in policy making? (Simple Answer) (simple english)

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Expert Solution

Time-inconsistency problem which is problem in day to day life. if we do any work with time consistent which result is more worth.Time inconsistency is a big issue. Regarding economics, Time-inconsistency problem means actions like policy making do on advanced level on a particular period of time but after that implimnt another one. There is the policy implimentation or policy making did not happend with in the time, that means there is time inconsistency occured. Economic policies determined on the basis of the adhoc judgement of economist as against the existing rules and regulations called discreationary policy. Dicretinary policy always create on time inconsistent in long run, for instance while the flood time Govt adopt discretionary policy on that time is different from the previous situation came as the same. But the discreationary policy impliment on time but its may not suitable for long run same as time inconsistency .Both are good for short run. Time inconsistency make problem in monetary policy implimentation because monetary policy making on the basis of anticipated inflation. The reality is far different from expectations so that political promising about low inlation and real inflation effct may create contradictory while implimenting monetary policy. so the chance of occuring time inconsistency is very high in monetary policy. However in the case of fiscal policy need much time to impliment and get result so there is the problem of time inconsistency is less compared to other policies.


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