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A Deliberative Independent Central Bank

Author

Listed:
  • Erwin Jericha

    (Vienna University of Technology)

  • Martin Schürz

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

The paper develops a communication game that is applied to the question of central bank policy and independence. The game is about the preferred degree of conservatism of monetary policy and the game setting consists of a principal (politics), an agent (central bank) and an observer (financial market participants). The extent of the welfare losses depends on the degree of knowledge, the endogenized signaling of financial market participants and the probability whether the degree of conservatism in monetary policy is adequate to nature. Consequently, a mechanism to minimize welfare losses of the principal has to be implemented. It is shown how the introduction of an institutional control mechanism with a countervailing goal function will improve the utilities for the principal.

Suggested Citation

  • Erwin Jericha & Martin Schürz, 2006. "A Deliberative Independent Central Bank," Working Papers 133, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:133
    as

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    File URL: https://www.oenb.at/dam/jcr:49de8efb-5945-4bb1-af1a-1e30bb19fd8b/wp133_tcm16-49232.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    accountability; agency losses; principal agent model;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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