Independent but Accountable: Walsh Contracts and the Credibility Problem
Ali al-Nowaihi () and
Paul Levine ()
No 1387, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Walsh (1995) addresses the government-central bank principal-agent problem where there exists a severe information extraction problem. This is solved by a ‘Walsh contract’ which links the income of the central bank to observed macroeconomic variables, output and inflation. The contract does not solve the time-inconsistency problem, however. There will be circumstances where a renegotiation of the contract benefits all parties involved and non-renegotiation-proofness destroys its credibility as a commitment device. But the contract’s strength is that renegotiation can be very visible and this facilitates a reputational solution to the problem, set out in this paper.
Keywords: Central Bank Contract; Credibility; Renegotiation; Reputation (search for similar items in EconPapers)
JEL-codes: C72 E61 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1387
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1387
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().