The paper examines whether central banks should be committed to achieving price stability (a low-inflation target), and how strong (explicit) their long-term monetary commitment should be. For that purpose we propose a game theoretic framework that enables us to model various degrees of commitment, as well as its endogenous deter- mination. Our main policy contribution consists in showing that the socially optimal degree of long-term monetary commitment depends on: (i) the potential short-term cost in terms of reduced stabilization flexibility, (ii) the potential benefi?t in terms of better anchored expectations, (iii) the structure of the economy, (iv) agents' expectations for- mation, and (v) the degrees of the central bank's conservatism (strictness) and ambition. The latter point implies substitutability between explicit inflation targeting and central bank goal-independence, and offers a possible explanation for the fact that countries with originally low degrees of central bank goal-independence have tended to commit more explicitly to price stability (legislate a unitary or hierarchical mandate rather than a dual mandate).
