A 1990s view is that inflation is best avoided by delegating monetary policy to an independent central bank. However most analyses overlook fiscal policy, which cannot be delegated. Here we make a very simple extension of the usual policy game by introducing the government as a third player, in charge of a fiscal instrument for demand management. If the government delegates monetary policy, there will be a battle over aggregate demand. Although the bank wins, so that inflation is avoided, it is as the cost of an excessive interest rate. Society's welfare may be lower than with no delegation.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy 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
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)