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We study the optimal design of a disinflation plan by a planner who lacks commitment. Having announced a plan, the Central banker faces a tradeoff between surprise inflation and building reputation, defined as the private sector's belief that the Central bank is committed to the plan. Some plans are harder to sustain: the planner recognizes that paving out future grounds with temptation leads the way for a negative drift of reputation in equilibrium. Plans that successfully create low inflationary expectations balance promises of lower inflation with dynamic incentives that make them more credible. When announcing the disinflation plan, the planner takes into account these anticipated interactions. We find that, even in the zero reputation limit, a gradual disinflation is preferred despite the absence of inflation inertia in the private economy.

Inflation --- Money and Monetary Policy --- Taxation --- Monetary Policy --- Stochastic and Dynamic Games --- Evolutionary Games --- Repeated Games --- Price Level --- Deflation --- Taxation, Subsidies, and Revenue: General --- Macroeconomics --- Monetary economics --- Public finance & taxation --- Inflation targeting --- Tax incentives --- Disinflation --- Prices --- Monetary policy --- United States

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International macroeconomic policy coordination is generally considered to be made less likely—and less profitable—by the presence of uncertainty about how the economy works. The present paper provides a counter-example, in which increased uncertainty about portfolio preference of investors makes coordination of monetary policy more beneficial. In particular, in the absence of coordination monetary authorities may respond to financial market uncertainty by not fully accommodating demands for increased liquidity, for fear of bringing about exchange rate depreciation. Coordinated monetary expansion would minimize this danger. A theoretical model incorporating an equity market is developed, and the stock market crash of October 1987 is discussed in the light of its implications for monetary policy coordination.

Finance: General --- Foreign Exchange --- Investments: Stocks --- Macroeconomics --- Stochastic and Dynamic Games --- Evolutionary Games --- Repeated Games --- Financial Markets and the Macroeconomy --- Monetary Policy --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- General Financial Markets: General (includes Measurement and Data) --- Price Level --- Inflation --- Deflation --- Macroeconomics: Consumption --- Saving --- Wealth --- Investment & securities --- Finance --- Currency --- Foreign exchange --- Stocks --- Stock markets --- Asset prices --- Exchange rates --- Consumption --- Financial institutions --- Financial markets --- Prices --- National accounts --- Stock exchanges --- Economics --- United States

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Central bank digital currencies (CBDCs) promise many benefits but, if not well designed, they could have undesired consequences, including for monetary policy. Issuing an unremunerated CBDC or a wholesale CBDC does not change the objectives of monetary policy or the operational framework for monetary policy. CBDCs can, however, induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals. Proposed CBDC design features, such as caps on CBDC holdings and unremunerating the CBDC can moderate disintermediation risks, but they are not sufficient. Central banks will need to ensure that unintended macroeconomic risks are comprehensively identified and mitigated.

United States --- Macroeconomics --- Economics: General --- Industries: Financial Services --- Money and Monetary Policy --- Banks and Banking --- Islamic Banking and Finance --- Noncooperative Games --- Stochastic and Dynamic Games --- Evolutionary Games --- Repeated Games --- Market Structure and Pricing: General --- Demand for Money --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- Central Banks and Their Policies --- Management of Technological Innovation and R&D --- Technological Change: Choices and Consequences --- Diffusion Processes --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Information and Internet Services --- Computer Software --- Other Economic Systems: Public Economics --- Financial Economics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Distributed ledgers --- Monetary economics --- Technology --- Financial institutions --- Money --- Financial services --- Central Bank digital currencies --- Commercial banks --- Velocity of money --- Islamic banking --- Monetary base --- Currency crises --- Informal sector --- Economics --- Financial services industry --- Technological innovations --- Banks and banking --- Islamic countries --- Money supply

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Financial inclusion is a key policy objective that central banks, especially those in emerging and low-income countries, are considering for retail central bank digital currency (CBDC). If properly designed to address the barriers to financial inclusion, CBDCs have the opportunity to gain acceptance by the financially excluded for digital payments. CBDC can then serve as an entry point to the broader formal financial system. CBDC has special aspects that may benefit financial inclusion, such as being a risk-free and widely acceptable form of digital money, availability for offline payments, and potentially lower costs and greater accessibility. However, CBDC is not a panacea to financial inclusion, and additional experience is needed to fully understand its potential impact.

Banking --- Banks and banking, Central --- Banks --- Central Bank digital currencies --- Central Banks and Their Policies --- Clearinghouses --- Computer Software --- Demand for Money --- Depository Institutions --- Diffusion Processes --- Digital financial services --- Distributed ledgers --- Economic & financial crises & disasters --- Economic sectors --- Economics of specific sectors --- Economics: General --- Evolutionary Games --- Finance --- Finance: General --- Financial inclusion --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Financial markets --- Financial services industry --- Financial services --- Government and the Monetary System --- Industries: Financial Services --- Information and Internet Services --- Macroeconomics --- Management of Technological Innovation and R&D --- Market Structure and Pricing: General --- Micro Finance Institutions --- Monetary Policy --- Monetary policy --- Monetary Systems --- Mortgages --- Noncooperative Games --- Payment Systems --- Payment systems --- Regimes --- Repeated Games --- Standards --- Stochastic and Dynamic Games --- Technological Change: Choices and Consequences --- Technological innovations --- Technology