Optimal conservativeness in the Rogoff (1985) model: A graphical and closed-form solution
AbstractIn Rogoff (1985) it is shown that society can make itself better off by appointing a central banker who places an additional weight on in ation rate stabilization relative to employment stabilization. Using an envelope theorem, Rogoff shows that this additional weight must be positive and finite. In this paper, we first use a graphical method to derive narrower boundaries for this extra weight. Then a closed-form solution is given, using Ferrari's method for solving a biquadratic equation. Finally, the comparative static properties of the optimal weight are determined by means of the graphical representation
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-121.
Date of creation: 1995
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Web page: http://center.uvt.nl
Central Banks; Optimization; Conservativeness; operations research;
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- Eijffinger, S.C.W. & Schaling, E., 1995. "The ultimate determinants of central bank independence," Discussion Paper 1995-5, Tilburg University, Center for Economic Research.
- 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.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, January.
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