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Short-term Deviations from Monetary Policy Commitment in a Monetary Union: The degrees of freedom of an independent Central Bank


  • Muriel Dal-Pont

    (University of Nice Antipolis)

  • Dominique Torre

    (University of Nice Antipolis)

  • Elise Tosi

    (University of Nice Antipolis)


The paper presents a model analyzing the degrees of freedom of an independent but committed Central Bank within a monetary union. In the model, interactions between Agents, Supranational Political Authorities and the Central Bank of the Union determine the current nominal and real outcomes. Imperfectly distributed information on shocks affecting supply, transmission channels and short-term expectations create opportunities for a Central Bank to deviate from its announced objective. This opportunity to deviate especially applies to Central Banks free from any kind of inflationary bias and committed to a strictly nominal target. Under certain conditions we show that nominal deviations from stated targets are not observable either by Agents or the Supranational Political Authority that periodically selects the membership of the Council of Monetary Policy of the Bank. Those deviations increase the variance of nominal values but dampen fluctuations of real income. Our results confirm, within a monetary union, the position defended by Cukierman and Metzler concerning the efficiency of a Central Bank’s ambiguous behaviour.

Suggested Citation

  • Muriel Dal-Pont & Dominique Torre & Elise Tosi, 2004. "Short-term Deviations from Monetary Policy Commitment in a Monetary Union: The degrees of freedom of an independent Central Bank," Notas Económicas, Faculty of Economics, University of Coimbra, issue 20, pages 22-38, December.
  • Handle: RePEc:gmf:journl:y:2004:i:20:p:22-38

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