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A Deliberative Independent Central Bank

Author

Listed:
  • Erwin Jericha

    () (Vienna University of Technology)

  • Martin Schürz

    () (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

The paper develops a communication game that is applied to the question of central bank policy and independence. The game is about the preferred degree of conservatism of monetary policy and the game setting consists of a principal (politics), an agent (central bank) and an observer (financial market participants). The extent of the welfare losses depends on the degree of knowledge, the endogenized signaling of financial market participants and the probability whether the degree of conservatism in monetary policy is adequate to nature. Consequently, a mechanism to minimize welfare losses of the principal has to be implemented. It is shown how the introduction of an institutional control mechanism with a countervailing goal function will improve the utilities for the principal.

Suggested Citation

  • Erwin Jericha & Martin Schürz, 2006. "A Deliberative Independent Central Bank," Working Papers 133, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:133
    as

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    File URL: https://www.oenb.at/dam/jcr:49de8efb-5945-4bb1-af1a-1e30bb19fd8b/wp133_tcm16-49232.pdf
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    References listed on IDEAS

    as
    1. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    3. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    4. Alan S. Blinder, 1996. "Central banking in a democracy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-14.
    5. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-124, Autumn.
    6. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters,in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
    7. Stanley Fischer, 1995. "Modern Approaches to Central Banking," NBER Working Papers 5064, National Bureau of Economic Research, Inc.
    8. Andrew Hughes Hallett & Peter Mooslechner, 1999. "Challenges for Economic Policy Coordination within European Monetary Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 169-170, September.
    9. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
    10. 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 473-491, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    accountability; agency losses; principal agent model;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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