Optimal central banker contracts and common agency: a comment

We explore a setting where the central bank is offered an incentive scheme by an interest group, in addition to the contract designed by the government. We prove that the inflation bias can be eliminated when principals do not cooperate and have different output or inflation objectives. These conclusions contrast with those of Chortareas and Miller (Public Choice 121:131–155, 2004). The reason is that our analysis takes into account the participation constraints of the central bank. We also show that, if principals cooperate, the inflation bias is eliminated when their output target is different but not when they disagree over the inflation objective.