The stabilization bias and robust monetary policy delegation
AbstractDiscretionary monetary policy suffers from a stabilization bias, whose size is known to be dependent on the degree of shock persistence. This note analyzes the size of this bias and, consequently, the rationale for delegating monetary policy to an inflation-averse central banker, when the economy faces uncertainty about the true degree of shock persistence. We show that the stabilization bias increases if uncertainty becomes larger. Hence, the degree of optimal monetary conservatism increases with the degree of uncertainty.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 31 (2009)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/622617
Minmax policy Delegation Shock uncertainty Conservative central bank Stabilization bias;
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