Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171592
Authors: 
Gersbach, Hans
Hahn, Volker
Year of Publication: 
2011
Series/Report no.: 
Economics Working Paper Series 11/149
Abstract: 
We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more effectively, thus facilitating more successful stabilization of current inflation. Inflation forecast contracts improve the accuracy of inflation forecasts, but have adverse consequences for output. On balance, paying central bankers according to their forecasting performance improves welfare.
Subjects: 
central banks
incentive contracts
transparency
inflation targeting
inflation forecast targeting
intermediate targets
JEL: 
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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