The pitfalls of central bank independence when agents are learning
Marine Charlotte Andre  1, 2@  
1 : Institut d'Etudes Politiques de Strasbourg  (Sciences Po Strasbourg)  -  Site web
Sciences Po Strasbourg
47, avenue de la Forêt Noire 67082 Strasbourg Cedex -  France
2 : Bureau d'économie théorique et appliquée  (BETA)  -  Site web
université de Strasbourg, CNRS : UMR7522, Université Nancy II
P E G E 61 avenue de la Forêt Noire 67085 STRASBOURG CEDEX -  France

Common wisdom holds that the central banker has to be independent from the government under the hypothesis of rational expectations. However, the assummption of learning puts into question the optimal combinations of conservatism and independence the government should choose. We show in this paper using a New Keynesian model that the central banker should be hawkish as learning, instrument- and goal-independence increase. For a substantial level of instrument independence, an increase in learning and goal-independence reduce the inflation bias and the stabilization bias, however, the welfare loss simultaneously increases.

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