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Monetary Policy With Uncertain Central Bank Preferences

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Author Info
Sibert, Anne

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Abstract

?This Paper considers monetary policy when the weight policy makers put on output loss relative to inflation is their private information. I show that in the first period of a two-period term, all policy makers but the least inflation averse inflate less – but respond more to shocks – than if there were no private information. Moderately inflation-averse policy makers may reduce their inflation most. A tendency toward increased conservatism in their second period increases inflation in the first. The model is extended to T-period terms, T < 8. It is shown that inflation depends solely on the policy maker’s time left in office and not how long he has served or what he has already done. With unchanging preferences and no discounting, inflation is lower the longer he has left.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3113.

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Date of creation: Dec 2001
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Handle: RePEc:cpr:ceprdp:3113

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Keywords: monetary policy signalling

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

References listed on IDEAS
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.:

  1. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  2. Avinash Dixit & Henrik Jensen, 2000. "Equilibrium Contracts for the Central Bank of a Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. Carlsson, Hans & Dasgupta, Sudipto, 1997. "Noise-Proof Equilibria in Two-Action Signaling Games," Journal of Economic Theory, Elsevier, vol. 77(2), pages 432-460, December. [Downloadable!] (restricted)
  4. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March. [Downloadable!] (restricted)
  6. Jon Faust & Lars E.O. Svensson, 1998. "Transparency and credibility: monetary policy with unobservable goals," International Finance Discussion Papers 605, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  8. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  9. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-96, July. [Downloadable!] (restricted)
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  10. Ramey, Garey, 1996. "D1 Signaling Equilibria with Multiple Signals and a Continuum of Types," Journal of Economic Theory, Elsevier, vol. 69(2), pages 508-531, May. [Downloadable!] (restricted)
  11. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September. [Downloadable!] (restricted)
  12. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
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  13. Sibert, Anne, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  14. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November. [Downloadable!] (restricted)
  15. Dixit, Avinash & Lambertini, Luisa, 2003. "Symbiosis of monetary and fiscal policies in a monetary union," Journal of International Economics, Elsevier, vol. 60(2), pages 235-247, August. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Demertzis, Maria & Hughes Hallett, Andrew, 2002. "Central Bank Transparency in Theory and Practice," CEPR Discussion Papers 3639, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Francesco Salsano, 2005. "Monetary Policy in the Presence Of Imperfect Observability Of The Objectives Of Central Bankers," Birkbeck Working Papers in Economics and Finance 0523, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  3. Jose Ripoll, 2003. "National Appointments to Multinational Monetary Policy Making: A Role Conflict?," Macroeconomics 0301009, EconWPA. [Downloadable!]
  4. Sibert, Anne, 2006. "Is Central Bank Transparency Desirable?," CEPR Discussion Papers 5641, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Maria Demertzis & Andrew Hughes Hallet, 2004. "Rational Ambiguity and Monitoring the Central Bank," WO Research Memoranda (discontinued) 759, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  6. Demertzis, Maria & Hughes Hallett, Andrew, 2005. "Forming Rational Expectations and When it is Right to be 'Wrong'," CEPR Discussion Papers 5042, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Arnab Bhattacharjee & Sean Holly, 2006. " Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 0612, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  8. Stephen Hansen & Michael F. McMahon, 2008. "Delayed Doves: MPC Voting Behaviour of Externals," CEP Discussion Papers dp0862, Centre for Economic Performance, LSE. [Downloadable!]
  9. Rodney Ramcharan, 2003. "Reputation, Debt, and Policy Conditionality," IMF Working Papers 03/192, International Monetary Fund. [Downloadable!]
  10. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Mihov, Ilian & Sibert, Anne, 2002. "Credibility and Flexibility with Monetary Policy Committees," CEPR Discussion Papers 3278, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Marcello D'Amato, 2004. "Commitment of Monetary Policy with Uncertain Central Bank Preferences," CSEF Working Papers 117, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  13. Demertzis, Maria & Hughes Hallett, Andrew, 2003. "Three Models of Imperfect Transparency in Monetary Policy," CEPR Discussion Papers 4117, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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