Serving three mastersoptimal monetary and regulatory policies when central bankers have career concerns

Resumo

Central bankers (CBs) decide on policies that affect the interests of three social groups: government politicians, financial market institutions and citizens. While it is desired that the monetary authority focuses primarily on maximizing the well-being of the latter group, it might divert from doing so in order to please the interests of the other two. This happens because CBs will eventually leave office, and they are aware that holding a good reputation among the members of the government and/or the market may be providential to boost their future career path. We provide a model that analyzes the strategic interaction between a CB (she) and her "three masters". Our findings show that the CB always implements a less favorable regulatory policy to the market when the governmental career is chosen. Monetary policy decisions, however, depend on her "future employer's" preferences: if the government gives a sufficiently low weight to the output, the CB implements a higher interest rate when she works on the government; if the financial market cares enough about inflation fighting, the monetary policy is more conservative when she goes to the financial industry.

Ficha do documento

Tipo

Artigo científico

Ano

2021

Instituição

EGV EPGE

Fonte

Revista Brasileira de Economia

Idioma

Português

Acesso

Não informado

Identificador

oai:ojs.periodicos.fgv.br:article/81928

Palavras-chave

Central BankAgency TheoryRegulationMonetary Policy