Independence before Conservatism: Transparency, Politics and Central Bank Design

Andrew Hughes Hallett and Diana Weymark ()

No 3336, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The problem of monetary policy delegation is formulated as a two-stage game between the government and the central bank. In the first stage the government chooses the institutional design of the central bank. Monetary and fiscal policy are implemented in the second stage. When fiscal policy is taken into account, there is a continuum of combinations of central bank independence and conservatism that produce optimal outcomes. This indeterminacy is resolved by appealing to practical considerations. In particular, it is argued that full central bank independence facilitates the greatest degree of policy transparency and political coherence.

Keywords: Central bank independence; Central bank conservatism; Monetary policy delegation; Credibility; Flexible response; transparency; Policy coherence (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-mon and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Independence Before Conservatism: Transparency, Politics and Central Bank Design (2005)
Journal Article: Independence Before Conservatism: Transparency, Politics and Central Bank Design (2005)
Working Paper: Independence Before Conservatism: Transparency, Politics, and Central Bank Design (2002)
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