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Independent Monetary Policies and Social Equality

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  • Andrew Hughes Hallett

    ()
    (Department of Economics, Vanderbilt University)

  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The problem of monetary policy delegation is formulated as a two-stage game between the government and the central bank. In the first stage the government chooses the institutional design of the central bank. Monetary and fiscal policy are implemented in the second stage. When fiscal policy has a social equality component, there is a natural conflict between optimally configured monetary policies and equality. As a result, governments interested in social redistribution, when faced with an independent central bank, will have an incentive to limit their use of fiscal policy.

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File URL: http://www.accessecon.com/pubs/VUECON/vu03-w07.pdf
File Function: First version, 2003
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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 0307.

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Date of creation: Apr 2003
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Handle: RePEc:van:wpaper:0307

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

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Keywords: Monetary independence; central bank conservatism; income redistribution;

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References

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  1. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," Boston College Working Papers in Economics 575, Boston College Department of Economics.
  2. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  3. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
  4. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  5. Diana N. Weymark, 2001. "Inflation, Income Redistribution, and Optimal Central Bank Independence," Vanderbilt University Department of Economics Working Papers 0102, Vanderbilt University Department of Economics.
  6. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.
  7. 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.
  8. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
  9. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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Citations

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Cited by:
  1. Andrew Hughes Hallett, 2008. "Coordination without Explicit Cooperation: Monetary-Fiscal Interactions in an Era of Demographic Change," European Economy - Economic Papers 305, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Andrew Hughes Hallett & Diana N. Weymark, 2002. "Independence Before Conservatism: Transparency, Politics, and Central Bank Design," Vanderbilt University Department of Economics Working Papers 0202, Vanderbilt University Department of Economics.
  3. Andrew Hughes Hallett, 2004. "Post-Thatcher Fiscal Strategies in the U.K.: An Interpretation," CESifo Working Paper Series 1372, CESifo Group Munich.
  4. Andrew Hughes Hallett, 2008. "Sustainable fiscal policies and budgetary risk under alternative monetary policy arrangements," Economic Change and Restructuring, Springer, vol. 41(1), pages 1-28, March.
  5. Kerstin Bernoth & Andrew Hughes Hallet & John Lewis, 2008. "Did fiscal policy makers know what they were doing? Reassessing fiscal policy with real-time data," DNB Working Papers 169, Netherlands Central Bank, Research Department.
  6. Diana N. Weymark, 2005. "Inflation, Government Transfers, and Optimal Central Bank Independence," Vanderbilt University Department of Economics Working Papers 0502, Vanderbilt University Department of Economics.
  7. Andrew Hallett & Jan Libich, 2012. "Explicit inflation targets and central bank independence: friends or foes?," Economic Change and Restructuring, Springer, vol. 45(4), pages 271-297, November.
  8. Frank Bohn, 2013. "The Politics of Surprise Devaluations: Modelling Motives for Giving Up a Peg," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(5-6), pages 562-574, October.
  9. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية
    [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]
    ," MPRA Paper 26856, University Library of Munich, Germany.
  10. N. Acocella & G. Bartolomeo & Andrew Hallett, 2006. "Controllability in Policy Games: Policy Neutrality and the Theory of Economic Policy Revisited," Computational Economics, Society for Computational Economics, vol. 28(2), pages 91-112, September.
  11. Weymark, Diana N., 2007. "Inflation, government transfers, and optimal central bank independence," European Economic Review, Elsevier, vol. 51(2), pages 297-315, February.
  12. Hughes Hallett, Andrew, 2005. "In Praise of Fiscal Restraint and Debt Rules. What the Euro Zone Might Do Now," CEPR Discussion Papers 5043, C.E.P.R. Discussion Papers.

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