Economic Models - Convex Optimization

The Advantages of Fiscal Leadership in an Economy 89
But substituting, δ = λ cb = 0 in the right-hand-side of Eq. (19) yields:
EL g = 0. (23)
Consequently, our results show that, when there is fiscal leadership, society’s
welfare loss (as measured by Eq. (19)) is minimized when the government
appoints independent central bankers who are concerned only with
the achievement of a mandated inflation target and completely disregard
the impact their policies may have on the output.
However, our results also indicate that fiscal leadership with an independent
central bank can be beneficial under more general conditions. When
δ = 0, βη + γ = 0 and the externalities between policy makers are neutralized.
20 As a result, Eq. (19) will become:
{ λ
cb
} 2
(24)
EL g = 1 2
α
for any value of λ cb . Hence, an independent central bank will always produce
better results than a dependent one, so long as it is more conservative
than the government (λ cb