Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets

Ugo Panizza

Open Economies Review, 1997, vol. 8, issue 1, 5-29

Abstract: Some recent papers have shown how a simple contract can eliminate the inflationary bias of discretionary monetary policy. This paper shows that if the central banker is risk averse, a contract in terms of money is superior to one in terms of inflation. The paper also shows that, if the central banker cares about his reappointment, an exchange rate target might always leads to the implementation of the optimal policy. Copyright Kluwer Academic Publishers 1997

Keywords: central banking; monetary policy; time consistency; inflation (search for similar items in EconPapers)
Date: 1997
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DOI: 10.1023/A:1008235414010

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