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Title:Central bank independence and conservatism under uncertainty: Substitutes or complements? PDF Logo
Authors:Hefeker, Carsten
Zimmer, Blandine
Issue Date:2011
Series/Report no.:CESifo working paper: Monetary Policy and International Finance 3344
Abstract:The paper examines the optimal combination of central bank independence and conservatism in the presence of uncertain central bank preferences. We develop a model of endogenous monetary policy delegation in which government chooses the central bank's degree of inde-pendence and conservatism so as to minimise society's loss function. We find that the optimal combination between independence and conservatism is not necessarily characterised by substitutability. When uncertainty about the central bank's preferences is high, independence and conservatism can become complements. In this case, giving more independence to the central bank increases the need for conservatism.
Subjects:central bank independence
conservatism
transparency
JEL:E52
E58
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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