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Caution and conservatism in the making of monetary policy

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  • Schellekens, Philip

Abstract

Does society benefit from the delegation of monetary policy to cautious and conservative central bankers? We offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences. First, caution improves credibility but does not obviate the need for central-bank conservatism. Second, previous models of delegation have focused on suboptimal forms of conservatism. We derive optimal concepts of conservatism that mitigate, or eliminate, any residual problem of credibility. Third, we rationalize why credible monetary policy may be conducive to stable inflation and output. JEL Classification: E50

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  • Schellekens, Philip, 2000. "Caution and conservatism in the making of monetary policy," Working Paper Series 25, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:200025
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp025.pdf
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    References listed on IDEAS

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    Cited by:

    1. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.

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    More about this item

    Keywords

    conservatism; credibility; monetary policy;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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