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Costs of Separating Budgetary Policy from Control of Inflation: A Neglected Aspect of Central Bank Independence

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Author Info

  • Blake, Andrew P
  • Weale, Martin

Abstract

The authors investigate the importance of coordinating monetary and fiscal policy in a fully dynamic model. The monetary authority seeks to control inflation while the fiscal authority has a budgetary target. They investigate the resulting Nash equilibrium and the consequences of a period of learning which may arise if each authority is not ex ante sure of the responses of the other. Both of these impact considerably on the outcome and indicate that there may be considerable costs to separating monetary and fiscal policy. Copyright 1998 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 50 (1998)
Issue (Month): 3 (July)
Pages: 449-67

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Handle: RePEc:oup:oxecpp:v:50:y:1998:i:3:p:449-67

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Cited by:
  1. repec:spo:wpecon:info:hdl:2441/3221 is not listed on IDEAS
  2. Hossein Samiei & Jan Kees Martijn, 1999. "Central Bank Independence and the Conduct of Monetary Policy in the United Kingdom," IMF Working Papers 99/170, International Monetary Fund.
  3. Creel, Jérôme, 2001. "Strategic Interactions between Monetary and fiscal Policies : a case study for the European Stability Pact," Economics Papers from University Paris Dauphine 123456789/3413, Paris Dauphine University.
  4. Jan Libich & Dat Thanh Nguyen & Petr Stehlík, 2011. "Monetary Exit Strategy and Fiscal Spillovers," CAMA Working Papers 2011-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Jérôme Creel, 2001. "Faut-il contraindre la politique budgétaire en Union monétaire ?. Les enseignements d'une maquette simulée," Revue de l'OFCE, Presses de Sciences-Po, vol. 77(2), pages 199-249.
  6. repec:spo:wpecon:info:hdl:2441/2943 is not listed on IDEAS
  7. Libich, Jan & Nguyen, Dat & Stehlik, Petr, 2014. "Monetary Exit and Fiscal Spillovers," MPRA Paper 57266, University Library of Munich, Germany.
  8. Kirsanova, Tatiana & Stehn, Sven Jari & Vines, David, 2006. "Five-Equation Macroeconomics: A Simple View of the Interactions Between Fiscal Policy and Monetary Policy," CEPR Discussion Papers 5464, C.E.P.R. Discussion Papers.

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