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Debt, Deficits, and Deflation in an Economy with Central Bank Independence

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  • Noritaka Kudoh

Abstract

This paper studies a simple monetary growth model with debt and deficits to investigate the effects of various polices on output and inflation when the central bank is `tough.' In sharp contrast to the vast literature which implicitly or explicitly assumes fiscal dominance regime, in which the fiscal authority commits to the primary deficits, an increase in government expenditures or the government's indebtedness reduces output and inflation: fiscal stimulus aiming at raising output and inflation will do just the opposite. Fighting deflation in a world with central bank independence requires fiscal discipline

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 486.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:486

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Keywords: monetary policy; fiscal policy; central bank independence;

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Cited by:
  1. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.

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