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

Andrew Hughes Hallett, Lorian D. Proske

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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.
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.
LanguageEnglish
JournalScottish Journal of Political Economy
Volume65
Issue number1
Pages97-104
Number of pages8
ISSN0036-9292
DOIs
StatePublished - Feb 2018

Cite this

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Conservative Central Banks : How Conservative Should a Central Bank Be? / Hallett, Andrew Hughes ; Proske, Lorian D.

In: Scottish Journal of Political Economy, Vol. 65, No. 1, 02.2018, p. 97-104.

Research output: Contribution to journalJournal articleResearchpeer-review

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