Robust delegation with uncertain monetary policy preferences

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Robust Delegation with Uncertain Monetary Policy PreferencesMarco M. Sorge * AbstractRecent research has renewed interest in the exploration of the optimal design of monetary policy institutions in the presence of uncertainty. In this paper, we revisit the rationale for delegation to a weight-conservative central banker when the social planner's knowledge about the true preferences of delegates is ex ante ambiguous and he exhibits a preference for robustness. In this context, a robust (worst-case oriented) delegation strategy is intended to minimize the maximum welfare loss over the uncertainty set, when no prior probability distribution for the preference bias (conservatism-gap) is available. We find that both over and underconservatism may emerge with respect to the certainty case, for robust delegation is shown to be model-dependent. Most importantly, under reasonable model's parameterizations, Rogoff's principle is reversed: it is optimal for society to appoint a weight-liberal central banker.

Optimal Conservatism and Collective Monetary Policymaking under Uncertainty

“…For recent contributions to the robust control literature in general, see for instance Tillmann (2009a) or Tillmann (2014). However, closer to our analysis are the papers by Tillmann (2009b) and Sorge (2013) where the "robust control" approach is adapted to determine the optimal degree of conservatism when the social planner faces some uncertainty, respectively, about cost-push shock persistence and central bank preferences. contributions consider the welfare effects of different types of decision-making procedure in a monetary union, such as the relative weights that regional and common developments should receive.…”

Introducing Principles and Standards for Responsible Investment

“…Finally, for the sake of completeness, we assume that the central bankers are heterogeneous with respect to their degree of conservatism, which is common knowledge. 10 Notably, as we stressed above, the degree of conservatism -10 For more information on uncertainty and central banker's preferences, see Beetsma and Jensen (1998), Muscatelli (1998), Lossani et al (1998), Tillman (2008, Sorge (2013), andMorimoto (2018).…”