سوگیری ثبات و هیئت نمایندگی سیاست های پولی مستحکم

Discretionary monetary policy suffers from a stabilization bias, whose size is known to be dependent on the degree of shock persistence. This note analyzes the size of this bias and, consequently, the rationale for delegating monetary policy to an inflation-averse central banker, when the economy faces uncertainty about the true degree of shock persistence. We show that the stabilization bias increases if uncertainty becomes larger. Hence, the degree of optimal monetary conservatism increases with the degree of uncertainty.

Since Rogoff’s (1985) seminal analysis, it is now common wisdom that delegating monetary policy to a central bank which is more inflation-averse than the social planner, i.e., to a “conservative central banker”, can raise welfare. In the recent generation of general equilibrium models for monetary policy analysis, the rationale for policy delegation is that monetary policy under discretion gives rise to inefficient inflation stabilization. A so-called stabilization bias emerges, which can be corrected by appointing a hawkish central banker, see e.g. Clarida et al. (1999).2 Since the public knows that inflation will respond less to a cost-push shock, expected future inflation is subdued. Stabilizing inflation becomes less costly in terms of future output contraction. Note that this rationale strengthens as the persistence of the cost-push shock process increases. A larger persistence eventually translates into higher volatility and aggravates the stabilization bias. This note analyzes the delegation decision under uncertainty about the persistence of shocks. In order to facilitate an analytical solution, the model is kept simple. The social planner is unable to formulate a probability distribution over the interval of possible realizations of the persistence of shocks. Instead, he follows a minmax strategy when deciding upon the optimal weight the central bank should attach to output fluctuations. This optimal weight is chosen such that the welfare loss that could occur due to persistence uncertainty is minimized. Throughout the paper, we refer to delegation that follows a minmax strategy as “robust delegation”, since the delegation outcome is robust to uncertainty about the shock process.3 As a central result it is shown that the stabilization bias increases when uncertainty becomes larger. This is because under the minmax paradigm, the planner should overestimate the true degree of persistence. Hence, the degree of monetary conservatism increases with the degree of uncertainty.4 This note is organized as follows. Section 2 derives optimal monetary policy and the size of the stabilization bias under certainty. In Section 3 we introduce uncertainty about the shock process and derive the main result. Section 4 sums up the results of this paper.

This note has shown that the stabilization bias of discretionary monetary policy, i.e., the insufficient stabilization of inflation, increases if the economy faces uncertainty about the persistence of supply shocks hitting the economy. A social planner, who delegates monetary policy to an inflation-averse central bank and follows a minmax approach to uncertainty should take this uncertainty into account when delegating policy. This paper shows that the planner should overestimate the degree of shock persistence. Thus, the optimal degree of conservatism under uncertainty is higher than under certainty.