A Comparison of Three Institutions for Monetary Policy When Central Bankers Have Private Objectives
How do different institutional arrangements for the central bank perform when central bankers have private objectives and society's objectives vary with time? This paper evaluates three benchmark monetary institutions from a constitutional perspective: (i) a contract with an inflation- or monetary target announcement; (ii) an inflation rule, and (iii) the laissez faire policy, i.e., the absence of any contractual arrangement. At the stage of institutional choice there is uncertainty about both society's mean inflation target and the central banker's future inflation target. A target announcement reveals the type of the central banker and solves the credibility vs. flexibility trade-off but it can not prevent that the central banker follows private objectives. The announcement-based contract is the optimal institution if (i) the initial uncertainty about the central banker's objectives is small and (ii) if unemployment is sufficiently high. Copyright 1997 by Kluwer Academic Publishers
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Backus, David & Driffill, John, 1985.
"Inflation and Reputation,"
American Economic Review,
American Economic Association, vol. 75(3), pages 530-38, June.
- Fratianni, Michele & von Hagen, Jurgen & Waller, Christopher J, 1997.
"Central Banking as a Political Principal-Agent Problem,"
Western Economic Association International, vol. 35(2), pages 378-93, April.
- Fratianni, Michele & von Hagen, Jürgen & Waller, Christopher, 1993. "Central Banking as a Political Principal-Agent Problem," CEPR Discussion Papers 752, C.E.P.R. Discussion Papers.
- Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
- Robert J. Barro & David B. Gordon, 1983.
"Rules, Discretion and Reputation in a Model of Monetary Policy,"
NBER Working Papers
1079, National Bureau of Economic Research, Inc.
- 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.
- Andreas Fischer, 1993. "Inflation Targeting: The New Zealand and Canadian Cases," Cato Journal, Cato Journal, Cato Institute, vol. 13(1), pages 1-27, Spring/Su.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Matthew B. Canzoneri, 1983.
"Monetary policy games and the role of private information,"
International Finance Discussion Papers
249, Board of Governors of the Federal Reserve System (U.S.).
- Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December.
- Grüner, Hans Peter & Hefeker, Carsten, 1994.
"Bank cooperation and banking policy in a monetary union: A political-economy perspective on EMU,"
Discussion Papers, Series II
238, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
- Hans GrÃ¼ner & Carsten Hefeker, 1996. "Bank cooperation and banking policy in a monetary union: A political-economy perspective on EMU," Open Economies Review, Springer, vol. 7(3), pages 183-198, July.
- 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.
- 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.
- Grilli, Vittorio, 1989. "Exchange rates and seigniorage," European Economic Review, Elsevier, vol. 33(2-3), pages 580-587, March.
When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:92:y:1997:i:1-2:p:127-43. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.