Monetary-Fiscal Interactions with a Conservative Central Bank
AbstractWe study macroeconomic stabilization when monetary and fiscal policies interact via their effects on output and inflation and the monetary authority is more conservative than the fiscal. We find that monetary-fiscal interactions result in poor macroeconomic stabilization. With both policies discretionary, the Nash equilibrium is suboptimal with higher output and lower inflation than optimal; the Nash equilibrium may be extreme with output higher and inflation lower than either authority want. Leadership equilibria are not second best. Monetary commitment is completely negated by fiscal discretion and yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Optimal macroeconomic stabilization requires either commitment of both monetary and fiscal policies, or identical targets for both authorities -- output socially optimal and inflation appropriately conservative -- or complete separation of tasks
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 627.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Monetary policy; Fiscal Policy;
Other versions of this item:
- Luisa Lambertini, 2006. "Monetary-Fiscal Interactions With A Conservative Central Bank," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(1), pages 90-128, 02.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-02 (All new papers)
- NEP-MAC-2004-08-02 (Macroeconomics)
- NEP-MON-2004-08-02 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bai, Yuting & Kirsanova, Tatiana, 2013.
"Infrequent Fiscal Stabilization,"
SIRE Discussion Papers
2013-17, Scottish Institute for Research in Economics (SIRE).
- Giovanni Di Bartolomeo & Marco Manzo & Francesco Giuli, 2008.
"Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness,"
0802, University of Crete, Department of Economics.
- Giovanni Di Bartolomeo & Francesco Giuli & Marco Manzo, 2009. "Policy uncertainty, symbiosis, and the optimal fiscal and monetary conservativeness," Empirica, Springer, vol. 36(4), pages 461-474, November.
- Giovanni Di Bartolomeo & Francesco Giuli & Marco manzo, 2005. "Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness," Macroeconomics 0508005, EconWPA.
- Di Bartolomeo, Giovanni & Giuli, Francesco, 2011.
"Fiscal and monetary interaction under monetary policy uncertainty,"
European Journal of Political Economy,
Elsevier, vol. 27(2), pages 369-375, June.
- Di Bartolomeo Giovanni & Giuli Francesco, 2009. "Fiscal and monetary interaction under monetary policy uncertainty," wp.comunite 0061, Department of Communication, University of Teramo.
- Matthew Canzoneri, 2007. "Coordination of Monetary and Fiscal Policy in a Monetary Union: Policy Issues & Analytical Models," Money Macro and Finance (MMF) Research Group Conference 2006 165, Money Macro and Finance Research Group.
- Oliver Grimm & Stefan Ried, 2007.
"Macroeconomic Policy in a Heterogeneous Monetary Union,"
SFB 649 Discussion Papers
SFB649DP2007-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Oliver Grimm & Stefan Ried, 2007. "Macroeconomic Policy in a Heterogeneous Monetary Union," CER-ETH Economics working paper series 07/67, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Stehn, Sven Jari & Vines, David, 2008.
"Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt,"
CEPR Discussion Papers
6913, C.E.P.R. Discussion Papers.
- Sven Jari Stehn & David Vines, 2008. "Strategic Interactions Between An Independent Central Bank and a Myopic Government with Government Debt," IMF Working Papers 08/164, International Monetary Fund.
- S. Gnocchi, 2007. "Discretionary Fiscal Policy and Optimal Monetary Policy in a Currency Area," Working Papers 602, Dipartimento Scienze Economiche, Universita' di Bologna.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.