TY  - JOUR
AU  - McCallum,Bennett T.
TI  - Crucial Issues Concerning Central Bank Independence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5597
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5597
L1  - http://www.nber.org/papers/w5597.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu
AB  - This paper argues, first, that it is inappropriate to presume that central banks will, in the absence of any tangible precommitment technology, inevitably behave in a `discretionary' fashion that implies an inflationary bias.  Furthermore, there is no necessary tradeoff between `flexibility and commitment.'  Second, to the extent that the absence of any precommitment technology is nevertheless a problem, it will apply to a consolidated central bank-plus-government entity as well as to the central bank alone.  Thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency, they merely relocate it.  Several implications are discussed.
ER  -