Optimal Term Length for an Overconfident Central Banker
AbstractThis paper discusses the implications of overconfidence when it affects a monetary policy-maker. We consider two forms of overconfidence: the illusion of precision and the illusion of control. Embedding them in a standard New Keynesian framework, we derive the optimal term length of a central banker and examine how it depends on the types and degrees of overconfidence. In particular, we show that the legal mandate should be lengthened when these two types of biases increase concurrently.
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Bibliographic InfoPaper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 106.
Length: 15 pages
Date of creation: Jun 2013
Date of revision: Jun 2013
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central banker; overcon dence; legal mandate; optimal term length;
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
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-09 (All new papers)
- NEP-CBA-2013-06-09 (Central Banking)
- NEP-MAC-2013-06-09 (Macroeconomics)
- NEP-MON-2013-06-09 (Monetary Economics)
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