from low average inflation over the long term We extend the positive theory of monetary policy from our previous paper (Barro and Gordon, 1983)to allow for reputational forces. Some mone tary rules, but generally not the ideal one, can be enforced by the policy maker's potential loss of reputation. We find that the resulting equili- brium looks like a weighted average of that under discretion and that under the ideal rule. Specifically, the outcomes are superior to those under discretion--where no commitments are pertinent--but inferior to those under the ideal rule (which cannot be enforced in our model by the potential loss of reputation). The results look more like discretion when the policy maker 's discount rate is high, but more like the ideal rule when the discount rate is low. Otherwise, we generate predictions about the behavior of monetary growth and inflation that resemble those from our previous anal ysis of discretionary policy. Namely, any change that raises the benefits of inflation shocks--such as a supply shock or a war--leads to a higher owth rate of money and prices The Policymaker's objective As in our earlier analysis, we think of the monetary authority 's objective as reflecting the preferences of the "representative" private agent. Ultimately, we express this objective as a function of actual and expected rates of inflation. Specifically, benefits derive from positive inflation shocks (at least over some range), but costs attach to higher rates of inflation—2— from low average inflation over the long term. We extend the positive theory of monetary policy from our previous paper (Barro and Gordon, 1983) to allow for reputational forces. Some mone￾tary rules, but generally not the ideal one, can be enforced by the policy￾maker's potential loss of reputation. We find that the resulting equili￾brium looks like a weighted average of that under discretion and that under the ideal rule. Specifically, the outcomes are superior to those under discretion--where no commitments are pertinent--but inferior to those under the ideal rule (which cannot be enforced in our model by the potential loss of reputation). The results look more like discretion when the policy￾maker's discount rate is high, but more like the ideal rule when the discount rate is low. Otherwise, we generate predictions about the behavior of monetary growth and inflation that resemble those from our previous anal￾ysis of discretionary policy. Namely, any change that raises the benefits of inflation shocks--such as a supply shock or a war--leads to a higher growth rate of money and prices. The Policymaker's Objective As in our earlier analysis, we think of the monetary authority's objective as reflecting the preferences of the "representative" private agent. Ultimately, we express this objective as a function of actual and expected rates of inflation. Specifically, benefits derive from positive inflation shocks (at least over some range), but costs attach to higher rates of inflation