Interactions between Monetary Policy and Fiscal Fiscal Rules
AbstractThe Fiscal Stability Pact for EMU suggests that constraints on fiscal policy are thought by policy makers to be necessary to ensure that the independent European central bank can control inflation. In this paper we examine the interrelationship between monetary and fiscal policy when both follow simple rules. We identify two stable policy regimes. In the 'active' regime, defined as a monetary policy that seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to ensure model stability. In the corresponding 'passive' regime, a fiscal policy which does not, by itself, ensure fiscal solvency constrains monetary policy to be relatively 'passive'. The precise nature of these constraints depends upon the importance of money and the degree to which the economy deviates from Ricardian Equivalence. We then present simulations which analyse the impact of differing degrees of policy activism in the face of shocks. Our conclusion is that the central bank does not need to seek, on this account, the degree of debt stabilisation that appears to be implied by the fiscal stability pact.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9913.
Length: 32 pages
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
More information through EDIRC
FISCAL POLICY ; MONETARY POLICY ; INFLATION;
Find related papers by JEL classification:
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Maria Demertzis & Andrew Hughes Hallett & Nicola Viegi, 1999. "Can the ECB be Truly Independent? Should It Be?," Empirica, Springer, vol. 26(3), pages 217-240, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlos Cortinhas).
If references are entirely missing, you can add them using this form.