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The stabilization bias and robust monetary policy delegation

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  • Tillmann, Peter

Abstract

Discretionary monetary policy suffers from a stabilization bias, whose size is known to be dependent on the degree of shock persistence. This note analyzes the size of this bias and, consequently, the rationale for delegating monetary policy to an inflation-averse central banker, when the economy faces uncertainty about the true degree of shock persistence. We show that the stabilization bias increases if uncertainty becomes larger. Hence, the degree of optimal monetary conservatism increases with the degree of uncertainty.

Suggested Citation

  • Tillmann, Peter, 2009. "The stabilization bias and robust monetary policy delegation," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 730-734, December.
    • Handle: RePEc:eee:jmacro:v:31:y:2009:i:4:p:730-734
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    References listed on IDEAS

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    Cited by:

    1. Richard Dennis, 2007. "Model uncertainty and monetary policy," Working Paper Series 2007-09, Federal Reserve Bank of San Francisco.
    2. Marine Charlotte André & Meixing Dai, 2017. "Can inflation contract discipline central bankers when agents are learning?," Working Papers of BETA 2017-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Juan Paez-Farrell, 2023. "On the unimportance of commitment for monetary policy," Papers 2308.08044, arXiv.org, revised Aug 2023.
    4. Oros, Cornel & Zimmer, Blandine, 2020. "Budget uncertainty in a monetary union," European Journal of Political Economy, Elsevier, vol. 63(C).
    5. André Marine Charlotte & Dai Meixing, 2018. "Learning, robust monetary policy and the merit of precaution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-20, June.
    6. Qin, Li & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2013. "Robust monetary policy under model uncertainty and inflation persistence," Economic Modelling, Elsevier, vol. 30(C), pages 721-728.
    7. André Marine Charlotte & Medina Espidio Sebastián, 2022. "Optimal Robust Monetary Policy in a Small Open Economy," Working Papers 2022-17, Banco de México.
    8. Carsten Hefeker & Blandine Zimmer, 2015. "Optimal Conservatism and Collective Monetary Policymaking under Uncertainty," Open Economies Review, Springer, vol. 26(2), pages 259-278, April.
    9. Sorge, Marco M., 2013. "Robust delegation with uncertain monetary policy preferences," Economic Modelling, Elsevier, vol. 30(C), pages 73-78.
    10. Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
    11. André, Marine Charlotte & Dai, Meixing, 2017. "Is central bank conservatism desirable under learning?," Economic Modelling, Elsevier, vol. 60(C), pages 281-296.
    12. Marine Charlotte André & Meixing Dai, 2018. "The limits to robust monetary policy in a small open economy with learning agents," Working Papers of BETA 2018-45, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    13. Tillmann, Peter, 2014. "Robust monetary policy, optimal delegation and misspecified potential output," Economics Letters, Elsevier, vol. 123(2), pages 244-247.
    14. Cornel OROS & Blandine ZIMMER, 2019. "Myopic governments and conservative central banks: are they compatible?," Working Papers of LaRGE Research Center 2019-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

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