Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts

Inflation target regimes (like those of New Zealand, Canada, U.K. and Sweden) are interpreted as having explicit inflation targets and implicit employment targets. Without employment persistence, 'an inflation target-conservative' central bank eliminates the inflation bias, mimics an optimal inflation contract, and dominates a Rogoff 'weight- conservative' central bank. With employment persistence, a state-contingent inflation bias and a stabilization bias also arises. A constant inflation target and a constant inflation contract are still equivalent. A state-contingent inflation target combined with a weight-conservative central bank can achieve the equilibrium corresponding to an optimal rule under commitment