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The optimal choice of central bank independence and conservatism under uncertainty

  • Hefeker, Carsten
  • Zimmer, Blandine

This paper examines the optimal monetary delegation arrangement of central bank independence and conservatism in the presence of uncertainty about the central bank’s output objective. We show that full independence is no longer optimal with uncertain central bank preferences, and that optimal delegation involves the choice of both independence and conservatism. Further, we find that the usual trade-off between independence and conservatism no longer necessarily holds. Consequently, high central bank independence may also require a high level of conservatism.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 4 ()
Pages: 595-606

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:595-606
DOI: 10.1016/j.jmacro.2011.09.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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