There has been in some countries a trend of assigning other functions to central banks besides price stability. The most suggested function to be added to monetary authority’s obligations is to pursue economic growth or full employment. In this paper we characterize the behavior and analyse the optimal monetary policy of, what we call, a naive central banker. We describe the naive behavior as one that does face the inflation-unemployment trade-off, but it tries to minimize both variables simultaneously. Our findings, both under discretion and commitment, indicate that the naive central banker delivers lower expected inflation and inflation variance than the benchmark behavior whenever the economy is rigid enough. However, the degree of conservativeness also affects this result, such that the less conservative the naive policymaker, the more rigidity is necessary.
Keywords:
Naive Central Banker; Inflationary Bias; Monetary Policy
