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Policy Games and the Optimal Design of Central Banks

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  • Andrew Hughes Hallett

    ()
    (Department of Economics, Vanderbilt University)

  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

This article studies the impact of alternative institutional configurations on economic performance when there is strategic interaction between the government and the central bank. The interaction between the fiscal and monetary authorities is modeled as a non-cooperative two-stage game. The institutions within which monetary and fiscal policies are implemented are represented by the degree of central bank independence, the degree of central bank conservatism, and the relative timing of fiscal and monetary policies. The four representative regimes considered capture the distinguishing features of monetary institutions in the United States, Switzerland, the European Union, and the United Kingdom.

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File URL: http://www.accessecon.com/pubs/VUECON/vu02-w20.pdf
File Function: First version, 2002
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0220.

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Date of creation: Aug 2002
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Handle: RePEc:van:wpaper:0220

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Central bank design; central bank independence; monetary policy delegation; policy coordination; policy game;

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References

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  1. Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
  2. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 196-200, May.
  3. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 835, Department of Economics and Business, Universitat Pompeu Fabra.
  4. David Currie & Paul Levine, 1985. "Macroeconomic Policy Design In An Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273 National Bureau of Economic Research, Inc.
  5. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 101-121.
  6. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(4), pages 907-922, November.
  7. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 201-06, May.
  8. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0128, Vanderbilt University Department of Economics.
  9. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 326-34, June.
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Citations

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Cited by:
  1. Andrew Hughes Hallett, 2008. "Debt targets and fiscal sustainability in an era of monetary independence," International Economics and Economic Policy, Springer, Springer, vol. 5(1), pages 165-187, July.
  2. Hughes Hallett, Andrew, 2005. "In Praise of Fiscal Restraint and Debt Rules. What the Euro Zone Might Do Now," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5043, C.E.P.R. Discussion Papers.
  3. Andrew Hughes Hallett & Diana N. Weymark, 2002. "Government Leadership and Central Bank Design," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0208, Vanderbilt University Department of Economics, revised Dec 2004.
  4. Andrew Hughes Hallett, 2008. "Coordination without Explicit Cooperation: Monetary-Fiscal Interactions in an Era of Demographic Change," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 305, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Andrew Hughes Hallett, 2004. "Post-Thatcher Fiscal Strategies in the U.K.: An Interpretation," CESifo Working Paper Series 1372, CESifo Group Munich.
  6. Andrew Hughes Hallett, 2008. "Sustainable fiscal policies and budgetary risk under alternative monetary policy arrangements," Economic Change and Restructuring, Springer, Springer, vol. 41(1), pages 1-28, March.

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