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Time-Inconsistency, Democracy, and Optimal Contingent Rules

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  • Minford, Patrick

Abstract

In a stochastic world there appears to be a trade-off between the necessary 'tying of hands' to conquer the effects of time-inconsistency and the desirability of flexible response. However, it is in principle possible for the electorate to achieve an optimal outcome by use of discriminatory electoral punishment, provided it has access to all relevant macro data prior to the election. Alternatively, it could punish an independent central bank mandated to pursue this outcome (but impotent without such a mandate): this has advantages in information and flexibility and allows elections to concentrate on nonconsensual issues. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Minford, Patrick, 1995. "Time-Inconsistency, Democracy, and Optimal Contingent Rules," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 195-210, April.
  • Handle: RePEc:oup:oxecpp:v:47:y:1995:i:2:p:195-210
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    Cited by:

    1. Lippi, Francesco & Swank, Otto H., 1999. "Rational Voters, Elections, and Central Banks: Do Representative Democracies Need Nonrepresentative Institutions?," Journal of Policy Modeling, Elsevier, vol. 21(4), pages 515-525, July.
    2. Adriel Jost, 2018. "Cultural Differences in Monetary Policy Preferences," Working Papers 2018-02, Swiss National Bank.
    3. Iannis A. Mourmouras & Michael G. Arghyrou, 1999. "Monetary Policy at the European Periphery. Greek Experience and Lessons for Transition Economies," CERT Discussion Papers 9910, Centre for Economic Reform and Transformation, Heriot Watt University.
    4. Carl E. Walsh, 2002. "When should central bankers be fired?," Economics of Governance, Springer, vol. 3(1), pages 1-21, March.
    5. Herrendorf, Berthold, 1998. "Inflation Targeting as a Way of Precommitment," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 431-448, July.
    6. António Caleiro, 2005. "How to Classify a Government? Can a Neural Network do it?," Economics Working Papers 9_2005, University of Évora, Department of Economics (Portugal).
    7. Patrick Minford & David Peel, 2003. "Optimal monetary policy: is price-level targeting the next step?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 650-667, November.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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