In a monetary game played by the private sector and a central bank (CB), who has private information, reputation may not completely solve the CB time inconsistency problem. An alternative solution is CB conservativeness. The optimal degree of CB conservativeness is solved in both the...

Due to their ties with elected leaders, central bankers may pursue policies that are not in society's best interests. Consequently, the relationship between the public and the central bank can be characterized as a principal-agent problem. An inflation and a stabilization bias arise as a result...