Monetary Policy With Uncertain Central Bank Preferences

?This Paper considers monetary policy when the weight policy makers put on output loss relative to inflation is their private information. I show that in the first period of a two-period term, all policy makers but the least inflation averse inflate less – but respond more to shocks – than if there were no private information. Moderately inflation-averse policy makers may reduce their inflation most. A tendency toward increased conservatism in their second period increases inflation in the first. The model is extended to T-period terms, T < 8. It is shown that inflation depends solely on the policy maker’s time left in office and not how long he has served or what he has already done. With unchanging preferences and no discounting, inflation is lower the longer he has left.