Conservative central banks: how conservative should a central bank be?

Andrew Hughes Hallett and Lorian D. Proske

Scottish Journal of Political Economy, 2018, vol. 65, issue 1, 97-104

Abstract: Using Rogoff's, 1985 model, we determine how inflation averse a central banker should be, given the level of volatility and projected output gap in the economy. We confirm a strong degree of conservatism, almost twice what society would have chosen. But, for a range of developing countries and the OECD, economies that systematically experience higher levels of output volatility would do best to hire a central banker who is more inflation averse than society, but less so than in stable developed economies. Thus, while a conservative central banker remains desirable, the trade†off is with output volatility rather than with the output gap itself.

Date: 2018
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https://doi.org/10.1111/sjpe.12149

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