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Discussion Paper Details

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Title: Rogoff's 'Conservative' Central Banker Restored

Author(s): Berthold Herrendorf and Ben Lockwood

Publication Date: April 1996

Keyword(s): Conservative Central Banker, Delegation and Incomplete Information

Programme Area(s): International Macroeconomics

Abstract: This paper shows that delegation of monetary policy to a weight-conservative central banker is optimal, although the government can also use an inflation contract, an employment target, an inflation target, or any combination of these, to control the central banker. The key feature of our model is a stochastic inflation bias, arising when wage-setters receive some information about a supply shock prior to signing nominal wage contracts. Weight-conservatism is shown to be desirable if the stochastic inflation bias cannot be eliminated by optimal choice of the delegation parameters.

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Bibliographic Reference

Herrendorf, B and Lockwood, B. 1996. 'Rogoff's 'Conservative' Central Banker Restored'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1386