Monetary Policy Delegation, Contract Costs and Contract Targets

12 Pages Posted: 5 Mar 2003

See all articles by Georgios E. Chortareas

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Abstract

We reconsider the optimal central banker contract derived in Walsh (1995). We show that if the government's objective function places weight (value) on the cost of the contract, then the optimal inflation contract does not completely neutralize the inflation bias. Furthermore, the more concerned the government is about the cost of the contract or the less selfish is the central banker, the smaller is the share of the inflation bias eliminated by the contract. Finally, a central banker contract written in terms of output can completely eradicate the inflationary bias, regardless of concerns about contract costs.

Suggested Citation

Chortareas, Georgios and Miller, Stephen M., Monetary Policy Delegation, Contract Costs and Contract Targets. Bulletin of Economic Research, Vol. 55, pp. 101-112, 2003. Available at SSRN: https://ssrn.com/abstract=376558

Georgios Chortareas (Contact Author)

University of Athens - Faculty of Economics ( email )

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University of Essex - Department of Accounting, Finance & Management ( email )

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United Kingdom

King's College London ( email )

Strand
London, England WC2R 2LS
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Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics ( email )

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Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

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Storrs, CT 06269-1063
United States

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