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Special Issue on The Era of New Central Banking: Challenges and Policy Experiences; Guest Editors: Ahmet Faruk Aysan (Central Bank of the Republic of Turkey), Hakan Danis (MUFG Union Bank), Huseyin Ozturk (Central Bank of the Republic of Turkey); Research PapersNo Access

OPTIMAL TERM LENGTH FOR AN OVERCONFIDENT CENTRAL BANKER

    https://doi.org/10.1142/S0217590816500107Cited by:0 (Source: Crossref)

    This paper discusses the implications of overconfidence when it affects a monetary policy maker. We consider two forms of overconfidence: the illusion of precision and the illusion of control. Incorporating them into a standard New Keynesian framework, we consider the optimal term length of a central banker and examine how it depends on the types and degrees of overconfidence. In particular, we show that the legal mandate should always be lengthened when these two types of biases increase by the same percentage magnitude.

    JEL: E58, H11

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