Central bankers generally prefer to reduce inflation gradually. We show that a central bank may try to convince the private sector of its commitment to price stability by choosing to reduce inflation quickly. We call this "teaching by doing". We find that allowing for teaching by doing effects...

The implications of uncertain policy preferences for the targeting and contracting approaches to monetary policy are investigated. It is shown that, in the presence of uncertain preferences, a linear incentive contract in the sense of Walsh performs better than an explicit inflation target as...

We study how determinacy and learnability of global rational expectations equilibrium may be accected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We study cases in which optimal...

In this paper we investigate central bank accountability by looking at the effect of transparency in a simple monetary policy game with an overriding mechanism. Monetary policy is transparent if there is little uncertainty about the central banker's preferences for inflation stabilization...

This paper develops a graphical method to determine the optimal degree of central bank conservativeness in an open economy. Unlike Rogoff (1985), the upper and lower bounds of the interval containing the optimal degree of conservativeness are expressed in terms of the structural parameters of...

In a comment on our recent paper in this journal, Beetsma and Jensen claim that Propositions 3 and 4 of our paper are incorrect due to minor computational mistakes. In this reply we give the correct propositions and show that our results still stand. Our conclusion is that central bank...

The first part of this paper outlines the concept of democratic accountability of central banks, and compares the legal accountability of the ECB with some other central banks (Bank of Canada, Bank of Japan, Bank of England and the Federal Reserve System). In the second part, we present a theory...