Autore: Bilbiie, Florin Ovidiu
Titolo: Inflation contracts, targets and strategic incentives for delegation in international monetary policy games.
Periodico: European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2001 - Fascicolo: 16 - Pagina iniziale: 1 - Pagina finale: 48

We study delegation by inflation targets and contracts as a mechanism of implementing the cooperative optimum in international monetary policy games. We prove that state-contingent inflation targets and contracts are equivalent in this framework and show how they can be designed to implement the collusive outcome. Then we study the strategic incentives governments have to delegate with the optimal contracts and targets. Regarding the game as a two-stage one we solve for the Subgame Perfect Nash Equilibrium in the delegation game in terms of contracts. We do this in two models, one with policy spillovers and one with policy spillovers and an inflation bias. The perfect equilibrium is different (inefficient) when compared to the optimal contracts. Only for state-independent contracts will the solutions be similar but this only eliminates the inflation bias without affecting shock stabilisation. For the optimum to be implemented, cooperation between countries or some form of coordination from a supranational authority is needed. Hence, the delegation solution merely relocates the problem to the delegation stage. Implementation of the collusive outcome is thus not non-cooperative, as argued by Persson and Tabellini (1995, 1996). Nevertheless, such an arrangement seems more plausible than binding agreements between countries over the policy outcomes in real world situations.


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Testo completo: http://www.iue.it/PUB/ECO2001-16.pdf

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