According to the game-theoretic model of monetary policy, inflation is the consequence of time-inconsistent behavior of the monetary authority. The inflation bias can be eased by handing over the responsibility for monetary policy to an independent central bank and appointing a...

An Independent Central Bank is often associated with being able to achieve low inflation and greater output stability than government run policies. In this paper we examine whether, and under what circumstances, an independent Central Bank can achieve both these targets with only one policy...