Commitment of Monetary Policy with Uncertain Central Bank Preferences

Marcello D'Amato

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In this paper we analyse the equilibrium degree of commitment in monetary policy to an independent central banker whose preferences are imperfectly observed by private agents. We characterize the incentive compatible strategies by a central bank in office for two periods with no restrictions on its type space. The equilibrium level of commitment is also characterized. We show that when incentive compatibility constraints are binding for a non trivial subset of types of central banks the equilibrium level of commitment involves bunching: different types of rational governments commit monetary policy to similar institutions.

Keywords: monetary policy; delegation; signalling games. (search for similar items in EconPapers)
JEL-codes: D82 E58 (search for similar items in EconPapers)
Date: 2004-04-01
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:117

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