Precommitment by central bank independence
The paper addresses the issue of central bank independence. The central argument is that government can precommit to the objective of price stability by providing a constitutional status of independence to the central bank. A sufficient set of institutional elements and the problem of incentive compatibility are discussed. It is argued that the solution is superior to a constitutional money rule as no rule can take adequately into account trend changes in output or velocity. Copyright Kluwer Academic Publishers 1991
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