Note on 'Loss of Monetary Discretion in a Simple Dynamic Policy Game.' (response to H. Jensen, Journal of Economic Dynamics and Control, vol. 18, p. 763, 1994)

H. Jensen's loss of monetary discretion model was extended to show that a zero-inflation rule may be much favorable compared to monetary discretion if real base money holdings are relatively low, which is expected in modern economics. There is a greater possibility that the zero-inflation rule will be favored if the emphasis on achieving public spending and output goals is reduced. Thus, the recent increase in the support for binding policy rules is in accordance with the reduced tolerance to inflation.