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On Optimal Contracts for Central Bankers and Inflation and Exchange-Rate-Targeting Regimes

Author

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  • Ratti, Ronald A

Abstract

This paper analyzes the issues of discretion and commitment in monetary policy under an exchange rate-targeting regime. Neither a linear state-contingent inflation contract for the central bank nor an explicit state-contingent inflation target combined with a weight-conservative central bank can now achieve the commitment equilibrium. It is shown that a state-contingent contract conditioned on the exchange rate and past output can implement the commitment equilibrium. Contracts conditioned on the exchange rate and inflation and on inflation and past output can also mimic the optimal rule under commitment.

Suggested Citation

  • Ratti, Ronald A, 2002. "On Optimal Contracts for Central Bankers and Inflation and Exchange-Rate-Targeting Regimes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 678-685, August.
    • Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:3:p:678-85
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    Cited by:

    1. Kandil, Magda, 2005. "Money, interest, and prices: Some international evidence," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 129-147.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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