Rogoff's Conservative Central Banker Restored
This paper shows that delegation of monetary policy to a weight-conservative central banker is optimal, although the government can also use an inflation contract, an employment target, an inflation target or any combination of these to control the central banker. The key feature of our model is a stochastic inflation bias, arising when wage setters receive some information about a supply shock prior to signing nominal wage contracts. Weight-conservation is shown to be desirable if the stochastic inflation bias cannot be eliminated by optimal choice of the delegation parameters.
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|Date of creation:||1996|
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