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Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets

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  • Ugo Panizza

Abstract

Some recent papers have shown how a simple contract can eliminate the inflationary bias of discretionary monetary policy. This paper shows that if the central banker is risk averse, a contract in terms of money is superior to one in terms of inflation. The paper also shows that, if the central banker cares about his reappointment, an exchange rate target might always leads to the implementation of the optimal policy. Copyright Kluwer Academic Publishers 1997

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  • Ugo Panizza, 1997. "Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets," Open Economies Review, Springer, vol. 8(1), pages 5-29, January.
    • Handle: RePEc:kap:openec:v:8:y:1997:i:1:p:5-29
    DOI: 10.1023/A:1008235414010
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    Cited by:

    1. Thomas Willett, 1999. "Developments in the Political Economy of Policy Coordination," Open Economies Review, Springer, vol. 10(2), pages 221-253, May.
    2. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Archive of Monetary Policy Division Working Papers 2001/37, Czech National Bank.
    3. Roisland, Oistein, 2001. "Institutional Arrangements for Monetary Policy When Output Is Persistent," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 994-1014, November.

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