When Does an Inflation Target Yield the Second Best? |
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| Authors: | Roel Beetsma,& Lans Bovenberg |
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| Affiliation: | University of Amsterdam, NL-1018 WB Amsterdam, The Netherlands,;Tilburg University, NL-5000 LE Tilburg, The Netherlands |
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| Abstract: | It is shown that an inflation target does not establish the second best if the central bank is independent and the government collects seigniorage revenues. To eliminate excessive inflation and ensure that stabilization is efficient, society should combine an optimal inflation target with a central bank that attaches less weight to inflation stabilization than the public does. |
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| Keywords: | Independent central bank inflation target second best seigniorage |
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