Monetary Policy and Public Finances
AbstractThis paper considers the interaction between the private sector, the monetary authority, and the fiscal authority, and concludes that unrestricted central bank independence may not be an optimal way to collect seigniorage revenues or stabilize supply shocks. Moreover, the paper shows that the implementation of an optimal inflation target results in optimal shares of government finances—seigniorage, taxes, and the spending shortfall—from society’s point of view but still involves suboptimal stabilization. Even if price stability is the sole central bank objective, a positive inflation target has important implications for the government’s finances, as well as for stabilization.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 99/26.
Date of creation: 01 Mar 1999
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- Francesca Castellani & Xavier Debrun, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund.
- Ronald Hillbrecht, 2001. "Metas de Inflação e Política Fiscal," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 55(3), pages 407-425, July.
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