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Central bank independence and conservatism under uncertainty: Substitutes or complements?

  • Carsten Hefeker

    ()

    (University of Siegen)

  • Blandine Zimmer

    ()

    (University of Strasbourg)

This paper revisits the trade-off between central bank independence and conservatism using a New Keynesian model with uncertainty about the central banker's output gap target. It is shown that when this uncertainty is high, the trade-off no longer holds. In this case, the optimal combination between independence and conservatism is characterised by complementarity.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/01-2010_hefeker.pdf
File Function: First version, 2010
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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201001.

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Length: 15 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mar:magkse:201001
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