Delegation and Loose Commitment
36 Pages Posted: 13 Nov 2008
Date Written: November 7, 2008
Abstract
This paper analyzes and compares the performance of different delegation schemes when the central bank has imperfect commitment. A continuum of loose commitment possibilities is considered ranging from full commitment to full discretion. The results show that the performance of inflation targeting improves substantially with higher commitment levels. On the other hand, the performance of other targeting regimes does not necessarily improve with the commitment level of the central bank. While it was previously thought that inflation targeting is inferior to other targeting regimes, the results show that it can be the best performing regime as long as the commitment level is not too low. These results may provide a theoretical explanation for the high popularity of inflation targeting among central banks.
Keywords: Targeting Regimes, Imperfect Commitment
JEL Classification: E52, E58, E61
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory
By Richard Clarida, Jordi Galí, ...
-
The Science of Monetary Policy: A New Keynesian Perspective
By Richard Clarida, Jordi Galí, ...
-
The Science of Monetary Policy: a New Keynesian Perspective
By Richard Clarida, Jordi Galí, ...
-
An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version
-
Monetary Policy Rules in Practice: Some International Evidence
By Richard Clarida, Jordi Galí, ...
-
Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets