Conservative Central Banks: How Conservative Should a Central Bank Be?

Andrew Hughes Hallett, Lorian D. Proske

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Using Rogoff's, 1985 model, we determine how inflation averse a central banker should be, given the level of volatility and projected output gap in the economy. We confirm a strong degree of conservatism, almost twice what society would have chosen. But, for a range of developing countries and the OECD, economies that systematically experience higher levels of output volatility would do best to hire a central banker who is more inflation averse than society, but less so than in stable developed economies. Thus, while a conservative central banker remains desirable, the trade‐off is with output volatility rather than with the output gap itself.
TidsskriftScottish Journal of Political Economy
Udgave nummer1
Sider (fra-til)97-104
Antal sider8
StatusUdgivet - feb. 2018