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| OPTIMAL-CONTRACTS FOR CENTRAL BANKERS |
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| Author(s): WALSH CE |
| Source: AMERICAN ECONOMIC REVIEW Volume: 85 Issue: 1 Pages: 150-167 Published: MAR 1995 |
| Times Cited: 239 References: 20 |
| Abstract: This paper adopts a principal-agent framework to determine how a central banket's incentives should be structured to induce the socially optimal policy. Im contrast to previous findings using ad hoc targeting rules, the inflation bias of discretionary policy is eliminated and an optimal response to shocks is achieved by the optimal incentive contract, even in the presence of private central-bank information. In the one-period model that has formed the basis for much of the literature on discretionary monetary policy, it is shown that the optimal contract ties the rewards of the central banker to realized inflation. |
| Document Type: Article |
| Language: English |
| Reprint Address: WALSH, CE (reprint author), UNIV CALIF SANTA CRUZ, DEPT ECON, SANTA CRUZ, CA 95064 USA |
Addresses:
1. FED RESERVE BANK SAN FRANCISCO, ECON RES, SAN FRANCISCO, CA 94120 USA |
| Publisher: AMER ECON ASSN, 2014 BROADWAY SUITE 305, NASHVILLE, TN 37203 |
| Subject Category: Economics |
| IDS Number: QN472 |
| ISSN: 0002-8282 |
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| | | | | | | | | Record from Web of Science® | | | | | | | | | |