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Delegation and Loose Commitment

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  • Nunes, Ricardo

Abstract

This paper analyzes and compares the performance of different delegation schemes when the central bank has imperfect commitment. A continuum of loose commitment possibilities is considered ranging from full commitment to full discretion. The results show that the performance of inflation targeting improves substantially with higher commitment levels. On the other hand, the performance of other targeting regimes does not necessarily improve with the commitment level of the central bank. While it was previously thought that inflation targeting is inferior to other targeting regimes, the results show that it can be the best performing regime as long as the commitment level is not too low. These results may provide a theoretical explanation for the high popularity of inflation targeting among central banks.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11555.

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Date of creation: Oct 2008
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Handle: RePEc:pra:mprapa:11555

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Keywords: Targeting Regimes; Imperfect Commitment;

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