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How Conservative Does The Central Banker Have To Be? On The Treatment Of Expectations Under Discretionary Policymaking

  • ALFRED V GUENDER

This paper explores an issue that arises in the delegation process. The paper shows that a myopic central banker, one who treats expectations as constant in setting discretionary policy, can replicate the behaviour of output and inflation under policy from a timeless perspective. For that to happen, society must delegate a price level target or a speed limit policy to a central banker who is more weight-conservative than society. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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Article provided by Wiley Blackwell in its journal Australian Economic Papers.

Volume (Year): 48 (2009)
Issue (Month): 1 (03)
Pages: 34-49

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Handle: RePEc:bla:ausecp:v:48:y:2009:i:1:p:34-49
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  1. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
  2. Vestin, David, 2000. "Price-level Targeting versus Inflation Targeting in a Forward-looking Model," Working Paper Series 106, Sveriges Riksbank (Central Bank of Sweden).
  3. Bennett T. McCallum & Edward Nelson, 2000. "Timeless Perspectives vs. Discretionary Monetary Policy In Forward-Looking Models," NBER Working Papers 7915, National Bureau of Economic Research, Inc.
  4. Henrik Jensen, . "Targeting Nominal Income Growth or Inflation?," EPRU Working Paper Series 99-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. Froyen, Richard T. & Guender, Alfred V., 2014. "Price level targeting and the delegation issue in an open economy," Economics Letters, Elsevier, vol. 122(1), pages 12-15.
  6. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-316.
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