Central-Bank Independence, Economic Behavior, and Optimal Term Lengths

Christopher Waller and Carl Walsh

American Economic Review, 1996, vol. 86, issue 5, 1139-53

Abstract: The authors parameterize central-bank independence in terms of partisanship and term length, focusing on the implications of alternative policy structures for real economic activity. While long terms of office for the central banker can reduce the role of electoral surprises, term lengths that are too long are costly if societal preferences are subject to permanent shifts. The appointment of a conservative central banker increases the optimal term length and leads to lower average inflation but need not increase the volatility of output. Copyright 1996 by American Economic Association.

Date: 1996
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