Inflation, Income Redistribution, and Optimal Central Bank Independence

Diana Weymark ()

No 102, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: The problem of monetary policy delegation is formulated as a two-stage non-cooperative game between the government and the central bank. The solution to this policy game determines the optimal combination of central bank conservatism and independence. The results obtained show that the optimal combination of central bank conservatism and independence that minimizes government losses is not unique and that there is substitutability between these institutional characteristics. Consequently, partial central bank independence can be optimal. The framework I employ provides a theoretical basis for interpreting the results obtained in empirical studies of the relationship between inflation and central bank independence.

Keywords: Central bank independence; inflation bias (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2001-03
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0102

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