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Commitment vs. discretion in the UK: An empirical investigation of the monetary and fiscal policy regime

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  • Tatiana Kirsanova
  • Stephanus le Roux

Abstract

This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2013_07.

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Date of creation: Mar 2013
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Handle: RePEc:gla:glaewp:2013_07

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Cited by:
  1. Chen, Xiaoshan & Kirsanova, Tatiana & Leith, Campbell, 2013. "How Optimal is US Monetary Policy?," Stirling Economics Discussion Papers 2013-05, University of Stirling, Division of Economics.

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