No abstract

Time inconsistency in monetary policy can be addressed appointing a conservative central banker. But incomplete information about the central banker's preferences impairs the performance of delegation schemes. Firstly, the ensuing ex‐ante variability of monetary response lowers welfare. Secondly, partial independence schemes may prove inadequate because reputation — not only legal arrangements — defines the actual degree of independence. The incumbent may exploit his reputation to impose too conservative policies whereas, if he lacks reputation, partial independence forces him to accommodate. As a result, simple rules may be preferred. …I do not believe that we should always get the best man for the post; often I fear that we should not even get a tolerable man. (W. Bagehot, The Government of the Bank of England, in ‘Lombard Street’)

No abstract

No abstract

This paper provides a model encompassing both partisan in¯uences on monetary policy and the issue of central bank independence. In a regime of partial independence, central bank's policy responses are not immune from partisan in¯uences. Still, the latter fail to aect systematically the expected output level in election years. The predictions of the model are consistent with the empirical literature on partisan cycles and account for some of its controversial ®ndings.