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Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation

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  • Francesca Castellani
  • Xavier Debrun

Abstract

This paper proposes a simple model illustrating the potential benefits of approaching the design of a macroeconomic framework conducive to low inflation in both its monetary and fiscal dimensions rather than relying exclusively on the merits of central bank independence and other monetary commitment devices such as currency boards or dollarization. The reason is that monetary delegation alone merely 'relocates' the time-inconsistency problem stemming from the government's incentive to address structural output shortfall with a macroeconomic stimulus. This paper also provides a new argument explaining why fiscal deficit rules may be less effective than instrument-specific rules. Copyright Blackwell Publishing Ltd. 2005

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 8 (2005)
Issue (Month): 1 (07)
Pages: 87-117

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Handle: RePEc:bla:intfin:v:8:y:2005:i:1:p:87-117

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271

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Cited by:
  1. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February.
  2. Stehn, Sven Jari & Vines, David, 2008. "Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt," CEPR Discussion Papers 6913, C.E.P.R. Discussion Papers.
  3. Xavier Debrun, 2011. "Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies," IMF Working Papers 11/173, International Monetary Fund.
  4. Daniele Franco (editor), 2012. "Rules and institutions for sound fiscal policy after the crisis," Workshop and Conferences 11, Bank of Italy, Economic Research and International Relations Area.
  5. Lars Calmfors & Giancarlo Corsetti & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi & Xavier Vives, 2012. "Chapter 4: The Swedish Model," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 99-114, 02.

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