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Dynamic monetary–fiscal interactions and the role of monetary conservatism

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  • Niemann, Stefan

Abstract

Assuming that macroeconomic policies are directed by distinct monetary and fiscal policy makers who cannot commit to future actions, we reassess the implications of monetary conservatism and fiscal impatience in a setting with nominal government debt. For environments where a non-negative steady state level of government debt (assets) emerges in the absence of conservatism and impatience, monetary conservatism induces accumulation of a higher stock of liabilities (assets) and has adverse (positive) welfare implications. This result obtains irrespectively of the degree of fiscal impatience and questions the unambiguous desirability of monetary conservatism traditionally found in the literature.

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  • Niemann, Stefan, 2011. "Dynamic monetary–fiscal interactions and the role of monetary conservatism," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 234-247.
    • Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:234-247
    DOI: 10.1016/j.jmoneco.2011.03.008
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    2. Adam, Klaus & Billi, Roberto M., 2014. "Distortionary fiscal policy and monetary policy goals," Economics Letters, Elsevier, vol. 122(1), pages 1-6.
    3. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    4. Di Bartolomeo, Giovanni & Saltari, Enrico & Semmler, Willi, 2019. "The effects of political short-termism on transitions induced by pollution regulations," EconStor Preprints 200143, ZBW - Leibniz Information Centre for Economics.
    5. Enrico Saltari & Willi Semmler & Giovanni Di Bartolomeo, 2022. "A Nash Equilibrium for Differential Games with Moving-Horizon Strategies," Computational Economics, Springer;Society for Computational Economics, vol. 60(3), pages 1041-1054, October.
    6. Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    7. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2013. "Central Bank Independence And The Monetary Instrument Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 1031-1055, August.
    8. Nakata, Taisuke & Schmidt, Sebastian, 2019. "Conservatism and liquidity traps," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 37-47.
    9. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    10. Saungweme, Talknice & Odhiambo, Nicholas M, 2021. "Does public debt granger-cause inflation? A multivariate analysis," Working Papers 28342, University of South Africa, Department of Economics.
    11. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    12. Niemann, Stefan & Pichler, Paul & Sorger, Gerhard, 2013. "Public debt, discretionary policy, and inflation persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 37(6), pages 1097-1109.
    13. Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    14. Lieberknecht, Philipp, 2018. "Financial Frictions, the Phillips Curve and Monetary Policy," MPRA Paper 89429, University Library of Munich, Germany.
    15. Fernando M. Martin, 2013. "Government Policy In Monetary Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 185-217, February.
    16. Talknice Saungweme & Nicholas M. Odhiambo, "undated". "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI06, African Economic and Social Research Institute (AESRI).
    17. Marco Bassetto & Gherardo Gennaro Caracciolo, 2021. "Monetary/Fiscal Interactions with Forty Budget Constraints," Working Papers 788, Federal Reserve Bank of Minneapolis.
    18. Stefano Gnocchi & Luisa Lambertini, 2016. "Monetary Commitment and the Level of Public Debt," Staff Working Papers 16-3, Bank of Canada.
    19. Giovanni Di Bartolomeo & Marco Di Pietro & Enrico Saltari & Willi Semmler, 2018. "Public debt stabilization: the relevance of policymakers’ time horizons," Public Choice, Springer, vol. 177(3), pages 287-299, December.
    20. T. Saungweme & N.M. Odhiambo, 2021. "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI-2021-25, African Economic and Social Research Institute (AESRI), revised Dec 2022.
    21. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    22. Niemann, S & Pichler, P & Sorger, G, 2009. "Inflation dynamics under optimal discretionary fiscal and monetary policies," Economics Discussion Papers 2898, University of Essex, Department of Economics.
    23. Niemann, Stefan & Pichler, Paul, 2011. "Optimal fiscal and monetary policies in the face of rare disasters," European Economic Review, Elsevier, vol. 55(1), pages 75-92, January.
    24. Miller, David S., 2016. "Commitment versus discretion in a political economy model of fiscal and monetary policy interaction," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 17-29.

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