Designing the Optimal Conservativeness of the Central Bank

Identificador:  PC:2154

Handle: https://hdl.handle.net/20.500.11797/PC2154

Autors:  Manzano, Carolina; Ferré Carracedo, Montserrat

Resum:
In this paper we propose a new measure of the degree of conservativeness of an inde- pendent central bank and we derive the optimal value from the social welfare perspective. We show that the mere appointment of an independent central bank is not enough to achieve lower inflation, which may explain the mixed results found between central bank independence and inflation in the empirical literature. Further, the optimal central bank should not be too conservative. For instance, we will show that in some circumstances it will be optimal that the central bank is less conservative than society in the Rogoff sense. JEL classification: E58, E63. Keywords: Central bank; Conservativeness; Independence.