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Inflation, Government Transfers, 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 show that the optimal institutional design always requires some degree of central bank independence and that there is substitutability between central bank independence and conservatism. The results also show that partial central bank independence can be optimal and that there are circumstances under which it is optimal for the government to appoint a liberal central banker.

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File URL: http://www.accessecon.com/pubs/VUECON/vu05-w02.pdf
File Function: First version, 2005
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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 0502.

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Date of creation: Jan 2005
Date of revision:
Handle: RePEc:van:wpaper:0502

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

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Keywords: Central bank conservatism; central bank independence; inflation bias; liberal central banker;

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References

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  1. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.
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Cited by:
  1. Carsten Hefeker & Blandine Zimmer, 2010. "Central bank independence and conservatism under uncertainty: Substitutes or complements?," MAGKS Papers on Economics 201001, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Levieuge, Grégory & Lucotte, Yannick, 2012. "A simple empirical measure of central banks' conservatism," MPRA Paper 38424, University Library of Munich, Germany.

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