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Rogoff's Conservative Central Banker Restored

Author

Listed:
  • Herrendorf, Berthold
  • Lockwood, Ben

Abstract

This paper shows that delegation of monetary policy to a weight-conservative central banker is optimal, although the government can also use an inflation contract, an employment target, an inflation target or any combination of these to control the central banker. The key feature of our model is a stochastic inflation bias, arising when wage setters receive some information about a supply shock prior to signing nominal wage contracts. Weight-conservation is shown to be desirable if the stochastic inflation bias cannot be eliminated by optimal choice of the delegation parameters.

Suggested Citation

  • Herrendorf, Berthold & Lockwood, Ben, 1996. "Rogoff's Conservative Central Banker Restored," The Warwick Economics Research Paper Series (TWERPS) 450, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:450
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1995-1998/twerp450.pdf
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    Keywords

    Conservative Central Banker ; Delegation ; Incomplete Information;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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