Political consensus, uncertain preferences, and central bank independence

Models where monetary policy is delegated to an independentcentral bank using contracts or targets usually assume thatthe preferences of the principal and the agent are known withcertainty. However, if there is no consensus in society aboutthe relative costs of inflation and output stabilisation, thedelegation solution may not produce a better outcome for themedian voter than discretion This paper examines the robustnessof the institutional solutions to the credibility problem withuncertain preferences We also examine the related issue of whetherpolitical parties have an interest in moving towards centralbank independence