The Non-Transparency of Timeless Rules

We address the usefulness of both fully optimal and optimal rules in a timeless perspective. We prove the existence of a determinate representation, which complements the Dennis (2010) observation that the optimal rule may be written in multiple ways, and note that it cannot therefore be estimated by econometricians. We show that this multiplicity problem cannot be resolved by appeal to robustly optimal policy as claimed by Woodford, nor by providing the private sector with the optimal conditions, as the latter may lead to loss of reputation if these are interpreted, as they are likely to be, as optimal policy. We relate this to the transparency of central banks, which is now regarded as the main guarantee of commitment by these bodies.