Inflation targeting as a way of pre-commitment
Inflation targeting as a way of pre-commitment
This paper considers an institutional arrangement in which the government assigns a publicly-announced inflation target to an instrument-independent central bank, but retains the discretion to revise the inflation target after wages have been set. We argue that since this arrangement is transparent, it solves Canzonen's private information problem, ensures perfect monitoring of the government, and makes reputational forces more effective Cases are characterized in which, for this reason, inflation targeting mitigates the inflationary bias of monetary policy.
431-448
Herrendorf, Berthold
3cf68f14-808a-42a7-9642-85b757775096
July 1998
Herrendorf, Berthold
3cf68f14-808a-42a7-9642-85b757775096
Herrendorf, Berthold
(1998)
Inflation targeting as a way of pre-commitment.
Oxford Economic Papers, 50 (3), .
Abstract
This paper considers an institutional arrangement in which the government assigns a publicly-announced inflation target to an instrument-independent central bank, but retains the discretion to revise the inflation target after wages have been set. We argue that since this arrangement is transparent, it solves Canzonen's private information problem, ensures perfect monitoring of the government, and makes reputational forces more effective Cases are characterized in which, for this reason, inflation targeting mitigates the inflationary bias of monetary policy.
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Published date: July 1998
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Local EPrints ID: 33450
URI: http://eprints.soton.ac.uk/id/eprint/33450
ISSN: 0030-7653
PURE UUID: e093980a-4887-4fd1-bfbf-6bba73571d4b
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Date deposited: 14 Dec 2007
Last modified: 08 Jan 2022 18:57
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Author:
Berthold Herrendorf
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