DP3113 Monetary Policy With Uncertain Central Bank Preferences
?This Paper considers monetary policy when the weight policy makers put on output
loss relative to inflation is their private information. I show that in the first period of a
two-period term, all policy makers but the least inflation averse inflate less ? but
respond more to shocks ? than if there were no private information. Moderately
inflation-averse policy makers may reduce their inflation most. A tendency toward
increased conservatism in their second period increases inflation in the first. The model
is extended to T-period terms, T < 8. It is shown that inflation depends solely on the
policy maker?s time left in office and not how long he has served or what he has
already done. With unchanging preferences and no discounting, inflation is lower the
longer he has left.
