Central bank independence: Optimal conservativeness, and optimal term lengths

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2003-6-1

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Saraçoğlu, Dürdane Şirin

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In many economies, the legal term length of office of central banker is specified by a constitutional rule set by the Government. However, this rule is effective as long as the central banker pursues credibly independent policies, and as long as the Government commits to the rule. On the other hand, the policies of the central banker must also be sufficiently flexible to respond to output shocks. In this paper, we determine that the Government can obtain the balance between credibility and flexibility by appointing an optimally weightconservative central banker who implements time-consistent policies for an optimal period of time.

Subject Keywords

Central bank independence, Optimal conservativeness

URI

http://www2.feas.metu.edu.tr/metusd/ojs/index.php/metusd/article/view/24
https://hdl.handle.net/11511/58525

Journal

ODTÜ Gelişme Dergisi

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Department of Economics, Article

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Citation Formats

D. Ş. Saraçoğlu, “Central bank independence: Optimal conservativeness, and optimal term lengths,” ODTÜ Gelişme Dergisi, vol. 30, no. 1, pp. 61–87, 2003, Accessed: 00, 2020. [Online]. Available: http://www2.feas.metu.edu.tr/metusd/ojs/index.php/metusd/article/view/24.