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Comparing the delegation of monetary and fiscal policy

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  • Simon Wren-Lewis

Abstract

The apparent success of independent central banks in conducting monetary policy has led many to argue that some form of policy delegation should also be applied to the macroeconomic aspects of fiscal policy.� A number of countries have recently established Fiscal Councils, although their role is typically to give advice on paths for government debt and deficits rather than decide upon and implement policy.� This paper examines how useful a comparison between monetary and fiscal policy can be in motivating and guiding Fiscal Councils.� Simple analogies between inflation bias and deficit bias can be misleading, and the motives for delegating aspects of fiscal policy may be rather different from those generally associated with monetary policy.� In addition, lack of knowledge about the desirable goals of long run debt policy, compared to a greater understanding of the objectives of monetary policy, may help explain key differences in the nature of delegation between the two.� The paper ends by making some comparisons between the delegation of monetary and fiscal policy in the United Kingdom.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 540.

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Date of creation: 01 Mar 2011
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Handle: RePEc:oxf:wpaper:540

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Keywords: Delegation; Fiscal councils; Deficit bias; Government debt;

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References

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  1. Leith, Campbell & Wren-Lewis, Simon, 2009. "When is Monetary Policy All we Need?," SIRE Discussion Papers 2009-25, Scottish Institute for Research in Economics (SIRE).
  2. Tatiana Kirsanova & Campbell Leith & Simon Wren-Lewis, 2009. "Monetary and Fiscal Policy Interaction: The Current Consensus Assignment in the Light of Recent Developments," Economic Journal, Royal Economic Society, vol. 119(541), pages F482-F496, November.
  3. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers 5866, C.E.P.R. Discussion Papers.
  4. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
  5. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Inflation Bias with Dynamic Phillips Curves," CEPR Discussion Papers 5534, C.E.P.R. Discussion Papers.
  6. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
  7. Tatiana Kirsanova & Campbell Leith & Simon Wren-Lewis, 2006. "Should Central Banks Target Consumer Prices or the Exchange Rate?," Economic Journal, Royal Economic Society, vol. 116(512), pages F208-F231, 06.
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Citations

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Cited by:
  1. Calmfors, Lars, 2011. "The Swedish Fiscal Policy Council," Seminar Papers 769, Stockholm University, Institute for International Economic Studies.
  2. Xavier Debrun, 2011. "Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies," IMF Working Papers 11/173, International Monetary Fund.
  3. Calmfors, Lars, 2010. "The Role of Independent Fiscal Policy Institutions," Seminar Papers 767, Stockholm University, Institute for International Economic Studies.
  4. Calmfors, Lars & Wren-Lewis, Simon, 2010. "What Should Fiscal Councils Do?," Seminar Papers 768, Stockholm University, Institute for International Economic Studies.
  5. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique
    [Coordination of monetary and fiscal policies: Theoretical Overview]
    ," MPRA Paper 48066, University Library of Munich, Germany.
  6. Giugale, Marcelo, 2010. "A Brave New World for Latin America," World Bank - Economic Premise, The World Bank, issue 10, pages 1-7, April.
  7. Lars Calmfors, 2011. "The Role of Independent Fiscal Policy Institutions," CESifo Working Paper Series 3367, CESifo Group Munich.
  8. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce
    [Fiscal and Monetary Policy Interactions : The Greece Case]
    ," MPRA Paper 45931, University Library of Munich, Germany.

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