Inflation Forecast Contracts

Hans Gersbach and Volker Hahn

No 11/149, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more effectively, thus facilitating more successful stabilization of current inflation. Inflation forecast contracts improve the accuracy of inflation forecasts, but have adverse consequences for output. On balance, paying central bankers according to their forecasting performance improves welfare.

Keywords: central banks; incentive contracts; transparency; inflation targeting; inflation forecast targeting; intermediate targets (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-07
New Economics Papers: this item is included in nep-cba, nep-cta, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Inflation forecast contracts (2014)
Working Paper: Inflation Forecast Contracts (2012)
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