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Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness

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  • Giovanni Di Bartolomeo

    ()
    (University of Teramo)

  • Marco Manzo
  • Francesco Giuli

Abstract

This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e. the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers� output target is equal to the natural level.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0802.

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Length: 24 pages
Date of creation: 17 Feb 2008
Date of revision:
Handle: RePEc:crt:wpaper:0802

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Keywords: Monetary-fiscal policy interactions; uncertainty; symbiosis.;

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References

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  1. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal taxation in an RBC model: A linear-quadratic approach," Discussion Papers 0405-16, Columbia University, Department of Economics.
  2. Glenn D. Rudebusch, 2000. "Assessing nominal income rules for monetary policy with model and data uncertainty," Working Paper Series 2000-03, Federal Reserve Bank of San Francisco.
  3. Alan J. Auerbach & Kevin A. Hassett, 2002. "Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty," NBER Working Papers 9132, National Bureau of Economic Research, Inc.
  4. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," Boston College Working Papers in Economics 575, Boston College Department of Economics.
  5. Söderström, Ulf, 2000. "Monetary policy with uncertain parameters," Working Paper Series 0013, European Central Bank.
  6. repec:cup:macdyn:v:6:y:2002:i:1:p:111-44 is not listed on IDEAS
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  24. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
  25. Douglas Hostland & David Dupuis, . "The Implications of Parameter Uncertainty for Medium-Term Fiscal Planning," Working Papers-Department of Finance Canada 2001-21, Department of Finance Canada.
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Citations

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Cited by:
  1. Di Bartolomeo Giovanni & Giuli Francesco, 2009. "Fiscal and monetary interaction under monetary policy uncertainty," wp.comunite 0061, Department of Communication, University of Teramo.
  2. Dai, Meixing & Sidiropoulos, Moïse, 2011. "Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium," MPRA Paper 29843, University Library of Munich, Germany.

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