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Designing the Optimal Conservativeness of the Central Bank

  • Ferré Carracedo, Montserrat
  • Manzano, Carolina

In this paper we propose a new measure of the degree of conservativeness of an inde- pendent central bank and we derive the optimal value from the social welfare perspective. We show that the mere appointment of an independent central bank is not enough to achieve lower inflation, which may explain the mixed results found between central bank independence and inflation in the empirical literature. Further, the optimal central bank should not be too conservative. For instance, we will show that in some circumstances it will be optimal that the central bank is less conservative than society in the Rogoff sense. JEL classification: E58, E63. Keywords: Central bank; Conservativeness; Independence.

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File URL: http://hdl.handle.net/2072/179623
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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/179623.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/179623
Contact details of provider: Postal: Avda. de la Universitat,1 - 43204 Reus (Tarragona)
Phone: 977 75 98 00
Fax: 977 75 98 10
Web page: http://www.urv.cat
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  1. Cukierman, Alex, 2007. "Central Bank Independence and Monetary Policymaking Institutions - Past Present and Future," CEPR Discussion Papers 6441, C.E.P.R. Discussion Papers.
  2. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1997. "Central bank independence and public debt policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 873-894, May.
  3. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," Boston College Working Papers in Economics 575, Boston College Department of Economics.
  4. Alberto F. Alesina & Andrea Stella, 2010. "The Politics of Monetary Policy," NBER Working Papers 15856, National Bureau of Economic Research, Inc.
  5. de Haan, Jakob, 1997. " The European Central Bank: Independence, Accountability and Strategy: A Review," Public Choice, Springer, vol. 93(3-4), pages 395-426, December.
  6. Wyplosz, Charles, 1997. "EMU: Why and How It Might Happen," CEPR Discussion Papers 1685, C.E.P.R. Discussion Papers.
  7. Christopher Crowe & Ellen E. Meade, 2007. "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 69-90, Fall.
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