Abstract

Does society benefit from the delegation of monetary policy to cautious and conservative central bankers? We offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences. First, caution improves credibility but does not obviate the need for central-bank conservatism. Second, previous models of delegation have focused on suboptimal forms of conservatism. We derive optimal concepts of conservatism that mitigate, or eliminate, any residual problem of credibility. Third, we rationalize why credible monetary policy may be conducive to stable inflation and output.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 160-177
Launched on MUSE
2002-02-01
Open Access
No
Archive Status
Archived 2007
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