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Is the Walsh Contract Really Optimal?

  • Francisco Candel-Sánchez

    ()

  • Juan Cristóbal Campoy-Miñarroy
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    The purpose of this paper is to show that the linear penalization to inflation found in Walsh (1995) is not the government's optimal choice when the fixed part of the transfer scheme is any given constant and the payment to the central bank represents a cost for the government.

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    Article provided by Springer in its journal Public Choice.

    Volume (Year): 120 (2004)
    Issue (Month): 1_2 (07)
    Pages: 29-39

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    Handle: RePEc:kap:pubcho:v:120:y:2004:i:1_2:p:29-39
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    2. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    3. Muscatelli, V Anton, 1999. "Inflation Contracts and Inflation Targets under Uncertainty: Why We Might Need Conservative Central Bankers," Economica, London School of Economics and Political Science, vol. 66(262), pages 241-54, May.
    4. Herrendorf, Berthold & Lockwood, Ben, 1996. "Rogoff's 'Conservative' Central Banker Restored," CEPR Discussion Papers 1386, C.E.P.R. Discussion Papers.
    5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    6. Beetsma, Roel M W J & Jensen, Henrik, 1998. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 384-403, August.
    7. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
    8. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
    9. Beetsma, Roel M W J & Bovenberg, Lans, 2001. " When Does an Inflation Target Yield the Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 119-26, March.
    10. Eijffinger, Sylvester & Hoeberichts, Marco & Schaling, Eric, 2000. " Optimal Central Bank Conservativeness in an Open Economy," Public Choice, Springer, vol. 105(3-4), pages 339-55, December.
    11. Canzoneri, Matthew B & Nolan, Charles & Yates, Tony, 1996. "Mechanisms for Achieving Monetary Stability: Inflation Targeting Versus the ERM," CEPR Discussion Papers 1418, C.E.P.R. Discussion Papers.
    12. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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