The Gains from Delegation Revisited: Price-Level Targeting, Speed-Limit and Interest Rate Smoothing Policies

32 Pages Posted: 18 Mar 2011

See all articles by Andrew P. Blake

Andrew P. Blake

Bank of England - CCBS

Tatiana Kirsanova

University of Glasgow - Adam Smith Business School

Tony Yates

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2011

Abstract

A commonly held view is that the life of a monetary policy maker forced to operate under discretion can be improved by the authorities delegating monetary policy objectives that are different from the social welfare function (including interest rate smoothing, price-level targeting and speed-limit objectives). We show that this holds with much less generality than previously realised. The reason is that in monetary policy models with capital accumulation (or similar variables) there may be multiple equilibria under discretion. Delegating modified objectives to the monetary policy maker does not change this. We find that the best equilbria under delegation are sometimes inferior to the worse ones without delegation. In general the welfare benefits of schemes like price-level targeting must be regarded as ambiguous.

Suggested Citation

Blake, Andrew P. and Kirsanova, Tatiana and Yates, Tony, The Gains from Delegation Revisited: Price-Level Targeting, Speed-Limit and Interest Rate Smoothing Policies (March 15, 2011). Bank of England Working Paper No. 415, Available at SSRN: https://ssrn.com/abstract=1786585 or http://dx.doi.org/10.2139/ssrn.1786585

Andrew P. Blake

Bank of England - CCBS ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Tatiana Kirsanova

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

Tony Yates (Contact Author)

affiliation not provided to SSRN ( email )

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