Inflation, Government Transfers, and Optimal Central Bank Independence

Diana Weymark (diana.weymark@vanderbilt.edu)

No 502, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: The problem of monetary policy delegation is formulated as a two-stage non-cooperative game between the government and the central bank. The solution to this policy game determines the optimal combination of central bank conservatism and independence. The results show that the optimal institutional design always requires some degree of central bank independence and that there is substitutability between central bank independence and conservatism. The results also show that partial central bank independence can be optimal and that there are circumstances under which it is optimal for the government to appoint a liberal central banker.

Keywords: Central bank conservatism; central bank independence; inflation bias; liberal central banker (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0502

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