Pay Incentives for Fed Officials? In the private sector, the pay of executives is typically tied to the performance of their company. Could this work in the public sector as well? Suppose pay for the chairman of the Federal Reserve is tied to the price of longterm bonds. That is, if bond prices rise, the chairman receives a bonus, but if they fall, the chairman’s salary will decrease. Would this provide a credible incentive for the chairman to keep inflation low? (Hint: Think of the links between inflation, interest rates, and bond prices.) Do you see any disadvantages to this proposal?
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