The Optimal Degree of Commitment to an Intermediate Monetary Target
Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization. Although having such an agent head the…
# The Optimal Degree of Commitment to an Intermediate Monetary Target
> OpenAlex Metadata Hub · https://openalex.org/W2167468761
## Bibliographic
- **DOI:** 10.2307/1885679
- **Year:** 1985
- **Citations:** 3704
- **Open Access:** No (closed)
- **License:** —
- **Source:** https://doi.org/10.2307/1885679
## Authors
- Kenneth Rogoff
## Abstract
Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization. Although having such an agent head the central bank reduces the time-consistent rate of inflation, it suboptimally raises the variance of employment when supply shocks are large. Using an envelope theorem, we show that the ideal agent places a large, but finite, weight on inflation. The analysis also provides a new framework for choosing among alternative intermediate monetary targets.
## Keywords
Degree (music), Volume (thermodynamics), Economics
## Concepts
- Degree (music)
- Volume (thermodynamics)
- Economics
- Physics
- Acoustics
- Quantum mechanics
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*Metadata only — full text not imported unless Open Access license permits.*
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Tóm lược học thuật (đã diễn giải): Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization. Although having such an agent head the central bank reduces the time-consistent rate of inflation, it suboptimally raises the variance of employment when supply shocks are large. Using an envelope theorem, we show that the ideal agent places a large, but finite, weight on inflation. The analysis also provides a new framework for choosing among alternative intermediate monetary targets.
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1. Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization.
2. Although having such an agent head the central bank reduces the time-consistent rate of inflation, it suboptimally raises the variance of employment when supply shocks are large.
3. Using an envelope theorem, we show that the ideal agent places a large, but finite, weight on inflation.
4. The analysis also provides a new framework for choosing among alternative intermediate monetary targets.
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