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Inflation, Income Redistribution, and Optimal Central Bank Independence

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  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The problem of monetary policy delegation is formulated as a two-stage non-cooperative game between the government and the central bank. The solution to this policy game determines the optimal combination of central bank conservatism and independence. The results obtained show that the optimal combination of central bank conservatism and independence that minimizes government losses is not unique and that there is substitutability between these institutional characteristics. Consequently, partial central bank independence can be optimal. The framework I employ provides a theoretical basis for interpreting the results obtained in empirical studies of the relationship between inflation and central bank independence.

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File URL: http://www.accessecon.com/pubs/VUECON/vu01-w02R.pdf
File Function: Revised version, 2002
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0102.

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Date of creation: Mar 2001
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Handle: RePEc:van:wpaper:0102

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Central bank independence; inflation bias;

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Cited by:
  1. Hughes Hallett, Andrew & Weymark, Diana, 2002. "Independence before Conservatism: Transparency, Politics and Central Bank Design," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3336, C.E.P.R. Discussion Papers.
  2. Hughes Hallett, Andrew & Weymark, Diana N., 2004. "Independent monetary policies and social equity," Economics Letters, Elsevier, Elsevier, vol. 85(1), pages 103-110, October.

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