Monetary policy with uncertain central bank preferences

This paper considers monetary policy when policy makers' preferences are private information. I show that in the first period of a two-period term, all policy makers but the least inflation averse inflate less - but respond more to shocks - than if there were no private information. Moderately inflation-averse policy makers may reduce their inflation most. A tendency toward increased conservatism in their second period increases inflation in the first. With T < infinity period terms, inflation depends solely on the policy maker's time left in office. With unchanging preferences and no discounting, inflation is lower the longer he has left. (C) 2002 Published by Elsevier Science B.V.