Should Central Banks Have an Inequality Objective?
Should central banks care about inequality? To address this question, we extend a standard model of time inconsistency in monetary policy to allow for heterogeneity. As in the standard analysis, lack of policy commitment leads to a bias towards socially excessive inflation. But the novel result is that, in the presence of heterogeneity, the bias can be offset by assigning the central bank a mandate under which agents with higher nominal wealth are given a higher relative weight than under the social welfare function. In other words, society should choose a central banker that is less egalitarian than itself, a result reminiscent of Rogoff’s “conservative central banker”. Our analysis underscores that including a concern for redistribution in the central bank’s mandate can enhance policy credibility, but the details can be unexpected and should reflect the role of the mandate in overcoming policy distortions.
Date: 14 November 2023, 13:15 (Tuesday, 6th week, Michaelmas 2023)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A or https://zoom.us/j/99960790792?pwd=L01NVnBQcGlqMVdQMHBiWDN3YmFMZz09
Speaker: Roberto Chang (Rutgers University)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Emma Heritage, Shreyasi Banerjee