Independent but Accountable: Walsh Contracts and the Credibility Problem
AbstractWalsh (1995) addresses the government-central bank principal-agent problem where there exists a severe information extraction problem. This is solved by a ‘Walsh contract’ which links the income of the central bank to observed macroeconomic variables, output and inflation. The contract does not solve the time-inconsistency problem, however. There will be circumstances where a renegotiation of the contract benefits all parties involved and non-renegotiation-proofness destroys its credibility as a commitment device. But the contract’s strength is that renegotiation can be very visible and this facilitates a reputational solution to the problem, set out in this paper.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1387.
Date of creation: Apr 1996
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Francesca Castellani & Xavier Debrun, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund.
- Muscatelli, V Anton, 1998.
"Political Consensus, Uncertain Preferences, and Central Bank Independence,"
Oxford Economic Papers,
Oxford University Press, vol. 50(3), pages 412-30, July.
- Anton Muscatelli, 1996. "Political Consensus, Uncertain Preferences and Central Bank Independence," Working Papers 9615, Business School - Economics, University of Glasgow, revised Nov 1996.
- Ali al-Nowaihi & Dean Garratt, 1998. "The New Political Macroeconomics," Discussion Papers in Economics 98/05, Department of Economics, University of Leicester.
- Rotondi, Zeno, 2000. "Credibility of optimal monetary delegation: do we really need prohibitive reappointment costs?," Discussion Paper Series In Economics And Econometrics 0003, Economics Division, School of Social Sciences, University of Southampton.
- al-Nowaihi, Ali & Levine, Paul, 1998.
"Can political monetary cycles be avoided?,"
Journal of Monetary Economics,
Elsevier, vol. 42(3), pages 525-545, October.
- Rotondi, Zeno, 2000. "Designing instrument rules for monetary stability: the optimality of interest-rate smoothing," Discussion Paper Series In Economics And Econometrics 0008, Economics Division, School of Social Sciences, University of Southampton.
- Lossani, Marco & Natale, Piergiovanna & Tirelli, Patrizio, 2000.
"Fiscal Policy and Inflation Targets: Does Credibility Matters?,"
18693, University Library of Munich, Germany.
- Lossani Marco & Natale Piergiovanna & Tirelli Patrizio, 2001. "Fiscal Policy and Inflation Targets: Does Credibility Matter?," Economia politica, Società editrice il Mulino, issue 3, pages 371-392.
- M. Lossani & P. Natale, & P. Tirelli, 1997. "Fiscal Policy and Imperfectly Credible Inflation Targets: Should We Appoint Expenditure-Conservative Central Bankers?," Working Papers 9707, Business School - Economics, University of Glasgow.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.