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Do we really need to tame a conservative ECB? When the policy mix matters Author info | Abstract | Publisher info | Download info | Related research | Statistics Marco Lossani (Catholic University of Milan-Bicocca)
Piergiovanna Natale () (Department of Economics, University of Milan-Bicocca)
Patrizio Tirelli () (Department of Economics, University of Milan-Bicocca)
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This paper contributes to the goal-versus-instrument independence debate for the ECB exploring how these alternative monetary arrangements perform when the fiscal authority pursues a strategy of debt reduction in the long term but retains fiscal flexibility in response to supply shocks. If fiscal policy is sufficiently flexible, appointing a goal independent (i.e. conservative) central banker dominates inflation targeting. In fact, as the fiscal authority and the central bank act independently in setting their countercyclical policies, an activist central banker causes excess volatility of inflation. This result provides theoretical content to the claim that a strong and goal-independent ECB needs a political match able to engineer countercyclical fiscal policies.
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number
18.
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Length: 19 pages
Date of creation: Oct 1997Date of revision:
Nov 1998Handle: RePEc:mib:wpaper:18Contact details of provider: Postal: Edificio U6 (III Piano) - Piazza dell'Ateneo Nuovo, 1 - 20126 Milano Phone: 02/6448-6581/89 Fax: 02/6448-6585 Email: Web page: http://dipeco.economia.unimib.it More information through EDIRC
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