Credibility and Flexibility with Independent Monetary Policy Committees
AbstractIndependent monetary policy committees are a simple way of attaining relatively low inflation without completely sacrificing an activist role for monetary policy. If central bankers' types are unknown, then for a wide range of parameters an independent committee achieves higher social welfare than either a zero-inflation rule or discretionary policy conducted by an opportunistic central banker. A key reason for the committee's superior performance is that committee members are relatively likely to opt for low inflation and building a reputation when shocks are small. When large shocks hit the economy, the incentive to react outweighs the reputation-building benefit.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 38 (2006)
Issue (Month): 1 (February)
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