The delegation of monetary policy: reputation or rules, instruments of credibility.

Summary The analysis of monetary policy has been greatly renewed in the last twenty years, thanks to the developments inspired by the articles of Barro and Gordon (1983 a and b). This work has made it possible, on the one hand, to propose an explanation of the inflationary phenomenon by demonstrating the dynamic incoherence of monetary policies and, on the other hand, to design institutional arrangements designed to control inflation. By influencing the incentives of the monetary policy maker, it is possible to encourage him to favour an anti-inflationary policy. The challenge then is to find arrangements that reduce uncertainty and dynamic inconsistency, but that leave some room for manoeuvre for the monetary authorities. The delegation of monetary policy to a conservative central banker is the institutional arrangement favored by many authors in the wake of the work of rogoff (1985). The purpose of this paper is to show that the dynamic incoherence is not completely resolved by this type of arrangement and that the content of the delegation should be modulated according to the context in which monetary responsibilities are exercised, on the one hand by integrating the budgetary authorities into the monetary policy game, and on the other hand by re-examining the role of rules. Simple independence with monetary leadership, coupled with monetary and/or budgetary rules, appears to be a very acceptable solution from the point of view of the credibility of monetary policy.