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The Walsh contract for central bankers proves optimal after all!

Author

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  • Georgios Chortareas

    ()

  • Stephen Miller

    ()

Abstract

A recent paper argues that the Walsh linear inflation contract does not prove optimal when the government concerns itself about the cost of the central bank contract (Candel-Sánchez & Campoy-Miñarro, 2004). This result relies on assuming that the participation constraint does not represent an effective constraint on the central banker’s decision. We show that the Walsh linear inflation contract does produce the optimal outcome, even when the government cares about the cost of the contract, assuming that the participation constraint holds. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Georgios Chortareas & Stephen Miller, 2007. "The Walsh contract for central bankers proves optimal after all!," Public Choice, Springer, vol. 131(1), pages 243-247, April.
  • Handle: RePEc:kap:pubcho:v:131:y:2007:i:1:p:243-247
    DOI: 10.1007/s11127-006-9115-z
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    File URL: http://hdl.handle.net/10.1007/s11127-006-9115-z
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    References listed on IDEAS

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    1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    2. Georgios E. Chortareas & Stephen M. Miller, 2003. "Monetary Policy Delegation, Contract Costs and Contract Targets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 101-112, January.
    3. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December.
    4. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
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    Citations

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    Cited by:

    1. Dai, Meixing & Spyromitros, Eleftherios, 2012. "Inflation contract, central bank transparency and model uncertainty," Economic Modelling, Elsevier, vol. 29(6), pages 2371-2381.
    2. Juan Campoy & Juan Negrete, 2008. "Optimal central banker contracts and common agency: a comment," Public Choice, Springer, vol. 137(1), pages 197-206, October.
    3. Giuseppe Ciccarone & Enrico Marchetti, 2012. "Optimal linear contracts under common agency and uncertain central bank preferences," Public Choice, Springer, vol. 150(1), pages 263-282, January.
    4. Enrico MARCHETTI & Giuseppe CICCARONE, "undated". "Linear Contracts, Common Agency and Central Bank Preference Uncertainty," EcoMod2008 23800083, EcoMod.

    More about this item

    Keywords

    Central banks; Optimal contracts;

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