The Walsh contract for central bankers proves optimal after all!
AbstractA recent paper argues that the Walsh linear inflation contract does not prove optimal when the government concerns itself about the cost of the central bank contract (Candel-Sánchez & Campoy-Miñarro, 2004). This result relies on assuming that the participation constraint does not represent an effective constraint on the central banker’s decision. We show that the Walsh linear inflation contract does produce the optimal outcome, even when the government cares about the cost of the contract, assuming that the participation constraint holds. Copyright Springer Science+Business Media, LLC 2007
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Bibliographic InfoArticle provided by Springer in its journal Public Choice.
Volume (Year): 131 (2007)
Issue (Month): 1 (April)
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Web page: http://www.springerlink.com/link.asp?id=100332
Central banks; Optimal contracts;
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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2000-01, University of Connecticut, Department of Economics.
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- Giuseppe Ciccarone & Enrico Marchetti, 2012. "Optimal linear contracts under common agency and uncertain central bank preferences," Public Choice, Springer, vol. 150(1), pages 263-282, January.
- Juan Campoy & Juan Negrete, 2008. "Optimal central banker contracts and common agency: a comment," Public Choice, Springer, vol. 137(1), pages 197-206, October.
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