This paper re-examines the role of conservatism in the delegation of monetary policy to an independent central bank. We develop a tractable framework featuring multiplicative instrument uncertainty and generalized quadratic policy objectives. The key insight of the model is that the conservative-central-banker approach need not imply an artificial trade-off between monetary policy credibility and flexibility. We propose two new concepts of conservatism, show that these can reproduce the second-best, and suggest interpretations in terms of the practice of inflation targeting and the penchant of central banks for stability. The model further justifies a strong version of the free lunch result of delegation and illustrates that any second-best delegation mechanism, which removes the credibility problem, at the same time reduces the variability of output.
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