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Precommitment by central bank independence

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  • Manfred Neumann
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    Abstract

    The paper addresses the issue of central bank independence. The central argument is that government can precommit to the objective of price stability by providing a constitutional status of independence to the central bank. A sufficient set of institutional elements and the problem of incentive compatibility are discussed. It is argued that the solution is superior to a constitutional money rule as no rule can take adequately into account trend changes in output or velocity. Copyright Kluwer Academic Publishers 1991

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    File URL: http://hdl.handle.net/10.1007/BF01886895
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    Bibliographic Info

    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 2 (1991)
    Issue (Month): 2 (June)
    Pages: 95-112

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    Handle: RePEc:kap:openec:v:2:y:1991:i:2:p:95-112

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    Web page: http://www.springerlink.com/link.asp?id=100323

    Related research

    Keywords: central bank; precommitment; rules; price stability; EMU;

    References

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    1. Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 10-18.
    2. Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
    3. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
    4. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
    5. D. Backus & J. Driffil, 1998. "Inflation and Reputation," Levine's Working Paper Archive 625, David K. Levine.
    6. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    8. Tabellini, Guido, 1988. "Centralized Wage Setting and Monetary Policy in a Reputational Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 102-18, February.
    9. Waller, Christopher J, 1989. "Monetary Policy Games and Central Bank Politics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 422-31, November.
    10. Waller, Christopher J., 1992. "A bargaining model of partisan appointments to the central bank," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 411-428, June.
    11. Michelle R. Garfinkel, 1989. "What is an "acceptable" rate of inflation?--a review of the issues," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-15.
    12. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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