Central Bank Independence and Conservatism under Uncertainty: Substitutes or Complements?

Carsten Hefeker and Blandine Zimmer ()

No 3344, CESifo Working Paper Series from CESifo

Abstract: The paper examines the optimal combination of central bank independence and conservatism in the presence of uncertain central bank preferences. We develop a model of endogenous monetary policy delegation in which government chooses the central bank's degree of inde-pendence and conservatism so as to minimise society's loss function. We find that the optimal combination between independence and conservatism is not necessarily characterised by substitutability. When uncertainty about the central bank's preferences is high, independence and conservatism can become complements. In this case, giving more independence to the central bank increases the need for conservatism.

Keywords: central bank independence; conservatism; transparency (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Central bank independence and conservatism under uncertainty: Substitutes or complements? (2010)
Working Paper: Central bank independence and conservatism under uncertainty: Substitutes or complements? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3344

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