Optimal In°ation Targets, In°ation Contracts and Political Cycles
نویسنده
چکیده
It has been widely accepted that politically induced variance can be generated when the wage contract is written before an election. In this paper, we show that in°ation contracts and in°ation targets can eliminate both the in°ation bias and politically induced variance, if electoral uncertainty is merely due to di®erent preferences. In contrast to the independent central bank that is based on cooperation between competing parties prior to the election, as suggested by Alesina and Gatti (1995), the contract and the target can be delegated by the winning party after the election. Concern for reputation can lead to the convergence of the in°ation targets assigned by di®erent parties. We also consider the case where uncertainty is caused not only by di®erent preferences, but also by di®erent desired rates in°ation. We show that it is quite possible to reduce in°ation but increase the variances of in°ation and output by adopting the in°ation target regime.
منابع مشابه
In°ation Target Instability and Interest Rates
The implementation of explicit quantitative in°ation targets elucidates the assessment of credibility of future monetary policy. Here the explicit in°ation target is time-varying and stochastic with asymmetric information. It is shown that central bank independence promotes lower in°ation but not at the cost of increased output variability. Marked political instability and instrument dependence...
متن کاملEffect of Polymer Concentr ation on the Structure and Performance of Polysulf one Flat Membrane for CO 2 Absorption in Membrane Contactor
متن کامل
Evaluating In ation Targeting Using a Macroeconometric Model
This paper uses a structurally estimatedmacroeconometricmodel, denoted the MC model, to evaluate in ation targeting in the United States. Various interest rate rules are tried with differing weights on in ation and output, and various optimal control problems are solved using differing weights on in ation and output targets. Price-level targeting is also considered. The results show that 1) the...
متن کاملPayments Systems with Random Matching and Private Information
A model of dynamic risk-sharing is constructed where agents meet pairwise and at random, and there is private information about endowments. Risk sharing is accomplished through dynamic contracts involving credit transactions, and through monetary exchange. A Friedman rule is optimal, and solutions are computed. The welfare costs of in‡ation and the e¤ects of in‡ation on the distribution of cons...
متن کاملPolitical Business Cycles and Monetary Policy Revisited An Application of a Two-Dimensional Asymmetric Taylor Reaction Function #286
This paper uses two-dimensional asymmetric Taylor reaction functions for 16 OECDcountries to account for diff erent reactions to the infl ation rate and output by central banks before or after an election of the fi scal authorities in the respective country. Important for such an investigation is not only the period before or after an election takes place but also whether the infl ation rate an...
متن کامل