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Inflation, Government Transfers, and Optimal Central Bank Independence

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Author Info
Diana N. Weymark () (Department of Economics, Vanderbilt University)

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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.vanderbilt.edu/Econ/wparchive/workpaper/vu05-w02.pdf
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File Function: First version, 2005
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0502.

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

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

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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    Other versions:
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  20. Beetsma, Roel M W J & Jensen, Henrik, 1998. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 384-403, August.
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