What is the Central Banks Game?
In this papaer we, first, by explicitly taking account of the private sectors influence and pressure on the monetary authorities, provide a more plausible representation of the motivations of the two main players. We then incorporate persistence into the model and show that the optimal policy of the authorities will be state dependent. Finally and most importantly, we highlight an inconsistency between two strands in the literature of monetary analysis, namely the long lags of monetary policy and the time inconsistency. Such a lag of monetary policy means that the policy will be transparently observed before it affects the economy, consequently the Central Bank cannot fool anybody who has not already bound herself into a contract longer than the lag. Even if such contracts are pervasive, the inflationary bias arising from time inconsistency much be must smaller than previously assessed.
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- Cukierman Alex, 1992.
"Central Bank Strategy, Credibility, And Independance: Theory And Evidence,"
Journal des Economistes et des Etudes Humaines,
De Gruyter, vol. 3(4), pages 10, December.
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"Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts,"
595, Stockholm - International Economic Studies.
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UCLA Economics Working Papers
369, UCLA Department of Economics.
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- Walsh, Carl E, 1995.
"Is New Zealand's Reserve Bank Act of 1989 an Optimal Central Bank Contract?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(4), pages 1179-91, November.
- Carl E. Walsh, 1994. "Is New Zealand's Reserve Bank Act of 1989 an optimal central bank contract?," Pacific Basin Working Paper Series 94-01, Federal Reserve Bank of San Francisco.
- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- repec:nbr:nberre:0126 is not listed on IDEAS
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
- 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.
- 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.
- Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
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