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Revisiting Public Debt and Inflation: Fiscal Implications of an Independent Central Banker

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  • Patrizio Tirelli

    ()
    (Department of Economics, University of Milan-Bicocca and University of Glasgow)

Abstract

The mainstream literature on monetary policy games under output persistence posits that: a) monetary regimes do not affect real variables in the steady state; b) optimal institutional design should entirely remove the inflation bias. We show that neither result necessarily holds if output persistence originates from debt dynamics and distortionary taxation. First, monetary delegation induces a strategic use of debt policy affecting steady-state distortions. Second, the reduction of such distortions may require monetary institutions that tolerate an inflation rate above the socially optimal level.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper31.pdf
File Function: First version, 2000
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 31.

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Length: 33 pages
Date of creation: Nov 2000
Date of revision: Nov 2000
Handle: RePEc:mib:wpaper:31

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  1. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Does monetary unification lead to excessive debt accumulation," Discussion Paper 1995-112, Tilburg University, Center for Economic Research.
  2. Roel M.W.J. Beetsma & Henrik Jensen, . "Optimal Inflation Targets, “Conservative” Central Banks, and Linear Inflation Contracts: Comment," EPRU Working Paper Series 98-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
  4. Fabrizio Coricelli & Alex Cukierman & Alberto Dalmazzo, 2006. "Monetary Institutions, Monopolistic Competition, Unionized Labor Markets and Economic Performance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 39-63, 03.
  5. Engwerda, J.C. & Aarle, B. van & Plasmans, J.E.J., 1998. "Fiscal Policy Interaction in the EMU," Discussion Paper 1998-113, Tilburg University, Center for Economic Research.
  6. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  7. Bovenberg, A.L. & Beetsma, R.M.W.J., 1997. "Central Bank independence and public debt policy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74443, Tilburg University.
  8. Beetsma, R.M.W.J. & Bovenberg, A.L., 1999. "Inflation Targets and Debt Accumulation in a Monetary Union," Discussion Paper 1999-108, Tilburg University, Center for Economic Research.
  9. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
  10. Marta Campillo & Jeffrey A. Miron, 1996. "Why Does Inflation Differ Across Countries?," NBER Working Papers 5540, National Bureau of Economic Research, Inc.
  11. repec:fth:tilbur:99108 is not listed on IDEAS
  12. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Some Evidence," Discussion Paper 1998-116, Tilburg University, Center for Economic Research.
  13. Beetsma, Roel M. W. J. & Bovenberg, A. Lans & Jensen, Henrik, 1996. "Note on 'Loss of monetary discretion in a simple dynamic policy game'," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1797-1800.
  14. Jensen, Henrik, 1994. "Loss of monetary discretion in a simple dynamic policy game," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 763-779.
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