Inflation Conservatism and Monetary-Fiscal Policy Interactions
AbstractThis paper investigates the stabilization bias that arises in a model of monetary and fiscal policy stabilization of the economy, when monetary authority puts higher weight on inflation stabilization than society. We demonstrate that inflation conservatism unambiguously leads to social welfare losses if the fiscal authority acts strategically under discretion. Although the precise form of monetary-fiscal interactions depends on the leadership structure, the choice of fiscal instrument, and the level of steady-state debt, the assessment of gains is robust to these assumptions. We develop an algorithm that computes leadership equilibria in a general framework of LQ RE models with strategic agents.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by International Journal of Central Banking in its journal International Journal of Central Banking.
Volume (Year): 7 (2011)
Issue (Month): 2 (June)
Other versions of this item:
- Andrew P. Blake & Tatiana Kirsanova, 2008. "Inflation-Conservatism and Monetary-Fiscal Policy Interactions," Discussion Papers 0801, Exeter University, Department of Economics.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zeeuw, A.J. de & Ploeg, F. van der, 1987.
"Difference games and policy evaluation: A conceptual framework,"
268, Tilburg University, Faculty of Economics and Business Administration.
- de Zeeuw, A J & van der Ploeg, F, 1991. "Difference Games and Policy Evaluation: A Conceptual Framework," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 612-36, October.
- Ploeg, F. van der & Zeeuw, A.J. de, 1991. "Difference games and policy evaluation: A conceptual framework," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377519, Tilburg University.
- Hughes Hallett, Andrew & Libich, Jan & Stehlík, Petr, 2009.
"Rogoff revisited: The conservative central banker proposition under active fiscal policies,"
Elsevier, vol. 104(3), pages 140-143, September.
- Andrew Hughes Hallett & Jan Libich & Petr Stehlik, 2007. "Rogoff Revisited: The Conservative Central Banker Proposition Under Active Fiscal Policies," CAMA Working Papers 2007-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Garreth Rule, 2012. "Collateral management in central bank policy operations," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 31, October.
- Matteo Fragetta & Tatiana Kirsanova, 2007.
"Strategic Monetary and Fiscal Policy Interactions: An Empirical Investigation,"
0706, Exeter University, Department of Economics.
- Fragetta, Matteo & Kirsanova, Tatiana, 2010. "Strategic monetary and fiscal policy interactions: An empirical investigation," European Economic Review, Elsevier, vol. 54(7), pages 855-879, October.
- Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
- Garreth Rule, 2011. "Issuing central bank securities," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 30, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).
If references are entirely missing, you can add them using this form.