Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142634
Authors: 
Sorge, Marco M.
Year of Publication: 
2012
Series/Report no.: 
EERI Research Paper Series 05/2012
Abstract: 
Recent research has renewed interest in the exploration of the optimal design of monetary policy institutions in the presence of uncertainty. In this paper, we revisit the rationale for delegation to a weight-conservative central banker when the social planner’s knowledge about the true preferences of delegates is ex ante ambiguous and he exhibits a preference for robustness. In this context, a robust (worst-case oriented) delegation strategy is intended to minimize the maximum welfare loss over the uncertainty set, when no prior probability distribution for the preference bias (conservatism-gap) is available. We find that both over and underconservatism may emerge with respect to the certainty case, for robust delegation is shown to be model-dependent. Most importantly, under reasonable model’s parameterizations, Rogoff’s principle is reversed: it is optimal for society to appoint a weight-liberal central banker.
Subjects: 
Delegation
Conservative central bank
Preference uncertainty
Minmax policy
JEL: 
E52
E58
Document Type: 
Working Paper

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