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Incomplete Information in Monetary Policy Games: Rules Rather Than a Conservative Central Banker

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  • Lossani, Marco
  • Natale, Piergiovanna
  • Tirelli, Patrizio

Abstract

Time inconsistency in monetary policy can be addressed appointing a conservative central banker. But incomplete information about the central banker's preferences impairs the performance of delegation schemes. Firstly, the ensuing ex ante variability of monetary response lowers welfare. Secondly, partial independence schemes may prove inadequate because reputation--not only legal arrangements--defines the actual degree of independence. The incumbent may exploit his reputation to impose too conservative policies, whereas if he lacks reputation, partial independence forces him to accommodate. As a result, simple rules may be preferred. Copyright 1998 by Scottish Economic Society.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 45 (1998)
Issue (Month): 1 (February)
Pages: 33-47

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Handle: RePEc:bla:scotjp:v:45:y:1998:i:1:p:33-47

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Cited by:
  1. Beetsma, R.M.W.J. & Jensen, H., 1996. "Inflation targets and contracts with uncertain central banker preferences," Discussion Paper 1996-93, Tilburg University, Center for Economic Research.
  2. Chortareas, Georgios E & Miller, Stephen M, 2003. " Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Public Choice, Springer, vol. 116(3-4), pages 271-95, September.
  3. Anton Muscatelli, 1996. "Political Consensus, Uncertain Preferences and Central Bank Independence," Working Papers 9615, Business School - Economics, University of Glasgow, revised Nov 1996.
  4. Ronald A. Ratti & Sang-Kun Bae, 2004. "Inflation Contracts, Inflation and Exchange Rate Targeting, and Uncertain Central Bank Preferences," Working Papers 0422, Department of Economics, University of Missouri, revised 21 Dec 2004.

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