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Rogoff's 'Conservative' Central Banker Restored

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Herrendorf, Berthold
Lockwood, Ben

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Abstract

This paper shows that delegation of monetary policy to a weight-conservative central banker is optimal, although the government can also use an inflation contract, an employment target, an inflation target, or any combination of these, to control the central banker. The key feature of our model is a stochastic inflation bias, arising when wage-setters receive some information about a supply shock prior to signing nominal wage contracts. Weight-conservatism is shown to be desirable if the stochastic inflation bias cannot be eliminated by optimal choice of the delegation parameters.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1386.

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Date of creation: Apr 1996
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Handle: RePEc:cpr:ceprdp:1386

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Related research
Keywords: Conservative Central Banker Delegation Incomplete Information

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

Cited by:
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  1. Manfred Gärtner, 2006. "The political economy of monetary policy conduct and central bank design," University of St. Gallen Department of Economics working paper series 2006 2006-25, Department of Economics, University of St. Gallen. [Downloadable!]
  2. Georgios E. Chortareas & Stephen M. Miller, 2002. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Working papers 2002-29, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  3. Anton Muscatelli, 1996. "Political Consensus, Uncertain Preferences and Central Bank Independence," Working Papers 9615, Department of Economics, University of Glasgow, revised Nov 1996.
    Other versions:
  4. Roel M. W. J. Beetsma & Henrik Jensen, 1999. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts: Comment," American Economic Review, American Economic Association, vol. 89(1), pages 342-347, March. [Downloadable!] (restricted)
    Other versions:
  5. Peter N. Ireland, 2002. ""Rules Rather Than Discretion" After Twenty Five Years: What Have We Learned? What More Can We Learn?," Boston College Working Papers in Economics 530, Boston College Department of Economics. [Downloadable!]
  6. Paul Levine & Joseph Pearlman, 2002. "Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff's Delegation Game," Open Economies Review, Springer, vol. 13(2), pages 153-174, April. [Downloadable!] (restricted)
  7. Diana N. Weymark, 2000. "Inflation, Income Redistribution, and Optimal Central Bank Independence," Working Papers 0102, Department of Economics, Vanderbilt University, revised Mar 2002. [Downloadable!]
  8. Diana N. Weymark, 2005. "Inflation, Government Transfers, and Optimal Central Bank Independence," Working Papers 0502, Department of Economics, Vanderbilt University. [Downloadable!]
  9. V A Muscatelli & Patrizio Tirelli, 1995. "Institutional Change, Inflation Targets and the Stability of Interest Rate Reaction Functions in OECD Economies"," Working Papers 9606, Department of Economics, University of Glasgow, revised Apr 1996. [Downloadable!]
  10. Schaling, E. & Hoeberichts, M. & Eijffinger, S., 1998. "Incentive contracts for central bankers under uncertainty: Walsh-Svensson non-equivalence revisited," Discussion Paper 11, Tilburg University, Center for Economic Research. [Downloadable!]
  11. Xavier Debrun & Francesca Castellani, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund. [Downloadable!]
  12. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October. [Downloadable!] (restricted)
  13. Eric Schaling & Marco Hoeberichts & Sylvester Eijffinger, . "Incentive schemes for central bankers under uncertainty: inflation targets versus contracts," Bank of England working papers 88, Bank of England. [Downloadable!]
  14. Manfred Gärtner, 2002. "Monetary policy and central bank behaviour," University of St. Gallen Department of Economics working paper series 2002 2002-24, Department of Economics, University of St. Gallen. [Downloadable!]
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