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Delegation and Loose Commitment

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  • Nunes, Ricardo

Abstract

This paper analyzes and compares the performance of different delegation schemes when the central bank has imperfect commitment. A continuum of loose commitment possibilities is considered ranging from full commitment to full discretion. The results show that the performance of inflation targeting improves substantially with higher commitment levels. On the other hand, the performance of other targeting regimes does not necessarily improve with the commitment level of the central bank. While it was previously thought that inflation targeting is inferior to other targeting regimes, the results show that it can be the best performing regime as long as the commitment level is not too low. These results may provide a theoretical explanation for the high popularity of inflation targeting among central banks.

Suggested Citation

  • Nunes, Ricardo, 2008. "Delegation and Loose Commitment," MPRA Paper 11555, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11555
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    File URL: https://mpra.ub.uni-muenchen.de/11555/1/MPRA_paper_11555.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Targeting Regimes; Imperfect Commitment;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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