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"Since stability of the price level is manifestly not society's only economic objective, what is the...

"Since stability of the price level is manifestly not society's only economic objective, what is the case for directing monetary policy solely toward that objective?" (Cooper 1988) How would Kydland and Prescott answer that question?

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Kydland and Prescott said when agents are forward looking, the problem of policy take a dynamic shape between the monetary authority and private sector. In case of monetary policy, the government first may promise lower inflation monetary policy but latter may renege and may implement expansionary monetary policy to reduce unemployment. Apart from the objective of stability of price level, the objective of the monetary policy ought to choose a position with relatively low unemployment and inflation, because high employment is very desirable to the society.

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