On Central Bank Independence and the Stability of Policy Targets |
| |
Authors: | Francesco Lippi |
| |
Institution: | Bank of Italy, I-00184 Rome, Italy |
| |
Abstract: | It is argued that impediments to the establishment of an independent central bank arise in the presence of unstable policy targets. Changing policy targets may occur with an office-motivated policymaker. This differs from politico-economic models where targets change depending on the partisanship of the politicians in office. In the model the principal faces a tradeoff between the credibility benefits of an independent central bank and the flexibility to pursue shifts in his policy targets allowed by a regime of policy discretion. An empirical section addresses the issue of the correlation between central bank independence and the stability of policy targets. |
| |
Keywords: | |
|
|