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The gains from delegation revisited: price-level targeting, speed-limit and interest rate smoothing policies

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  • Blake, Andy

    ()
    (Bank of England)

  • Kirsanova, Tatiana

    (University of Exeter)

  • Yates, Tony

    ()
    (Bank of England)

Abstract

A commonly held view is that the life of a monetary policy maker forced to operate under discretion can be improved by the authorities delegating monetary policy objectives that are different from the social welfare function (including interest rate smoothing, price-level targeting and speed-limit objectives). We show that this holds with much less generality than previously realised. The reason is that in monetary policy models with capital accumulation (or similar variables) there may be multiple equilibria under discretion. Delegating modified objectives to the monetary policy maker does not change this. We find that the best equilbria under delegation are sometimes inferior to the worse ones without delegation. In general the welfare benefits of schemes like price-level targeting must be regarded as ambiguous.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 415.

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Length: 32 pages
Date of creation: 15 Mar 2011
Date of revision:
Handle: RePEc:boe:boeewp:0415

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  1. Ploeg, F. van der & Zeeuw, A.J. de, 1991. "Difference games and policy evaluation: A conceptual framework," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377519, Tilburg University.
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Cited by:
  1. Garreth Rule, 2012. "Collateral management in central bank policy operations," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 31, October.
  2. Garreth Rule, 2011. "Issuing central bank securities," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 30, October.

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