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Is the Walsh Contract Really Optimal?

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  • Francisco Candel-Sánchez

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  • Juan Cristóbal Campoy-Miñarroy
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    Abstract

    The purpose of this paper is to show that the linear penalization to inflation found in Walsh (1995) is not the government's optimal choice when the fixed part of the transfer scheme is any given constant and the payment to the central bank represents a cost for the government.

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    Bibliographic Info

    Article provided by Springer in its journal Public Choice.

    Volume (Year): 120 (2004)
    Issue (Month): 1_2 (07)
    Pages: 29-39

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    Handle: RePEc:kap:pubcho:v:120:y:2004:i:1_2:p:29-39

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    Web page: http://www.springerlink.com/link.asp?id=100332

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Beetsma, Roel & Jensen, Henrik, 1997. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," CEPR Discussion Papers 1562, C.E.P.R. Discussion Papers.
    2. Herrendorf, Berthold & Lockwood, Ben, 1996. "Rogoff's 'Conservative' Central Banker Restored," CEPR Discussion Papers 1386, C.E.P.R. Discussion Papers.
    3. Svensson, Lars E O, 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," CEPR Discussion Papers 1249, C.E.P.R. Discussion Papers.
    4. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    5. Canzoneri, Matthew B & Nolan, Charles & Yates, Tony, 1996. "Mechanisms for Achieving Monetary Stability: Inflation Targeting Versus the ERM," CEPR Discussion Papers 1418, C.E.P.R. Discussion Papers.
    6. 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.
    7. Muscatelli, V Anton, 1999. "Inflation Contracts and Inflation Targets under Uncertainty: Why We Might Need Conservative Central Bankers," Economica, London School of Economics and Political Science, vol. 66(262), pages 241-54, May.
    8. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
    9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    10. 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.
    11. Eijffinger, Sylvester & Hoeberichts, Marco & Schaling, Eric, 2000. " Optimal Central Bank Conservativeness in an Open Economy," Public Choice, Springer, vol. 105(3-4), pages 339-55, December.
    12. Beetsma, Roel M W J & Bovenberg, Lans, 2001. " When Does an Inflation Target Yield the Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 119-26, March.
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    Citations

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    Cited by:
    1. Georgios E. Chortareas & Stephen M. Miller, 2006. "The Walsh Contracts for Central Bankers Are Optimal After All!," Working papers 2006-14, University of Connecticut, Department of Economics.

    Lists

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    1. Carl E. Walsh in Wikipedia (English)

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