Delegation and Loose Commitment

36 Pages Posted: 13 Nov 2008

See all articles by Ricardo Cavaco Nunes

Ricardo Cavaco Nunes

Federal Reserve Banks - Federal Reserve Bank of Boston

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

Nunes, Ricardo Cavaco, Delegation and Loose Commitment (November 7, 2008). Available at SSRN: https://ssrn.com/abstract=1300403 or http://dx.doi.org/10.2139/ssrn.1300403

Ricardo Cavaco Nunes (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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