Elections, heterogeneity of central bankers and inflationary pressure: The case for staggered terms for the president and the central banker

Abstract This paper analyzes a signaling model of monetary policy when inflation targets are not set by the monetary authority. The most important implication of the model’s solution is that a higher ex-ante dispersion in central bankers’ preferences, referred to as heterogeneity in policy orientation, increases the signaling cost of commitment to inflation targets. The model allows for a comparison of two distinct institutional arrangements regarding the tenure in office of the central banker and the head of government. We find that staggered terms yield superior equilibria when opportunistic political business cycles can arise from presidential elections. This is a consequence of a reduction of information asymmetry about monetary policy, and gives theoretic support to the observed practice of staggered terms among independent central banks.

Bibliographic Details

Main Authors:	Bugarin,Mauricio S., Carvalho,Fabia A. de
Format:	Digital revista
Language:	English
Published:	Fundação Getúlio Vargas 2020
Online Access:	http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402020000400418
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