Conservative Central Banks: How Conservative Should a Central Bank Be?

8 Pages Posted: 4 Jan 2018

See all articles by Andrew J. Hughes Hallett

Andrew J. Hughes Hallett

George Mason University - School of Policy, Government, and International Affairs

Lorian D. Proske

University of St. Andrews

Date Written: February 2018

Abstract

Using Rogoff's, 1985 model, we determine how inflation averse a central banker should be, given the level of volatility and projected output gap in the economy. We confirm a strong degree of conservatism, almost twice what society would have chosen. But, for a range of developing countries and the OECD, economies that systematically experience higher levels of output volatility would do best to hire a central banker who is more inflation averse than society, but less so than in stable developed economies. Thus, while a conservative central banker remains desirable, the trade‐off is with output volatility rather than with the output gap itself.

Suggested Citation

Hughes Hallett, Andrew and Proske, Lorian D., Conservative Central Banks: How Conservative Should a Central Bank Be? (February 2018). Scottish Journal of Political Economy, Vol. 65, Issue 1, pp. 97-104, 2018, Available at SSRN: https://ssrn.com/abstract=3096262 or http://dx.doi.org/10.1111/sjpe.12149

Andrew Hughes Hallett (Contact Author)

George Mason University - School of Policy, Government, and International Affairs ( email )

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Lorian D. Proske

University of St. Andrews

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United Kingdom

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