Recently, Svensson (1997) has shown that a combination of state-contingent inflation targeting and central banker conservatism produces optimal monetary policy if employment is persistent. We argue that the state-contingent nature of the scheme may undermine its credibility. We then show that...

When optimal monetary policy is subject to a credibility problem, it is often argued that the government should appoint a central banker whose incentives differ from the government's. I argue, however, that such delegation does not overcome credibility problems given that delegation is...