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Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions

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Author Info

  • Tatiana Kirsanova

    (Department of Economics, University of Exeter)

  • Stephanus le Roux

    (Department for Work and Pensions)

Abstract

This paper investigates the conduct of monetary and fiscal policy in the UK in the period of the Bank of England independence and before the start of the quantitative easing. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under the fiscal intra-period leadership we demonstrate that the past policy in the UK is better explained as following optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers, and derive implied policy rules.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1108.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1108.

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Date of creation: 2011
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Handle: RePEc:exe:wpaper:1108

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Related research

Keywords: Monetary and Fiscal Policy; Commitment; Discretion; Macroeconomic Stabilisation; Bayesian Estimation;

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Cited by:
  1. Paez-Farrell, Juan, 2012. "Should central bankers discount the future? A note," Economics Letters, Elsevier, vol. 114(1), pages 20-22.
  2. Laura Coroneo & Valentina Corradi & Paulo Santos Monteiro, 2013. "Testing for optimal monetary policy via moment inequalities," Discussion Papers 13/07, Department of Economics, University of York.

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