Abstract
The paper applies the tools of insurance economics to address the trade‐off between commitment and flexibility arising in monetary policy. Monetary regimes are considered as alternative insurance policies designed to stabilize output. This approach provides a simple and straightforward reinterpretation of some seminal contributions to the literature on time inconsistency—such as the desirability of monetary policy delegation to an independent conservative central banker—and it accounts for some novel results deriving from informational asymmetries about the central banker’s degree of conservatism.
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