When central bank preferences are uncertain, delegation implemented by inflation or exchange rate targeting may be superior to delegation implemented through an inflation contract combined with an optimal inflation target. Distortion introduced by uncertainty about preferences into stabilization...

Within a standard model of monetary delegation we show that the optimal linear inflation contract performs strictly better than the optimal inflation target when there is uncertainty about the central banker’s preferences. The optimal combination of a contract and a target performs best, and...

This paper shows that the government can achieve its precommitment outcome in monetary policy when output follows an autoregressive process, by offering the central banker a linear inflation contract, and where the parameters of the contract depend on lagged output. This note therefore offers an...