IDEAS home Printed from https://ideas.repec.org/a/bla/intfin/v8y2005i1p87-117.html
   My bibliography  Save this article

Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation

Author

Listed:
  • Francesca Castellani
  • Xavier Debrun

Abstract

This paper proposes a simple model illustrating the potential benefits of approaching the design of a macroeconomic framework conducive to low inflation in both its monetary and fiscal dimensions rather than relying exclusively on the merits of central bank independence and other monetary commitment devices such as currency boards or dollarization. The reason is that monetary delegation alone merely ‘relocates’ the time‐inconsistency problem stemming from the government's incentive to address structural output shortfall with a macroeconomic stimulus. This paper also provides a new argument explaining why fiscal deficit rules may be less effective than instrument‐specific rules.

Suggested Citation

  • Francesca Castellani & Xavier Debrun, 2005. "Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation," International Finance, Wiley Blackwell, vol. 8(1), pages 87-117, March.
  • Handle: RePEc:bla:intfin:v:8:y:2005:i:1:p:87-117
    DOI: 10.1111/j.1367-0271.2005.00152.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1367-0271.2005.00152.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1367-0271.2005.00152.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Beetsma, Roel M W J & Jensen, Henrik, 1998. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 384-403, August.
    3. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    4. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    5. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    6. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    7. Paul Levine & Joseph Pearlmann, 2001. "Monetary Union: The Ins and Outs of Strategic Delegation," Manchester School, University of Manchester, vol. 69(3), pages 285-309, June.
    8. Cukierman, Alex & Lippi, Francesco, 2001. "Labour Markets and Monetary Union: A Strategic Analysis," Economic Journal, Royal Economic Society, vol. 111(473), pages 541-565, July.
    9. Muscatelli, Anton, 1998. "Optimal Inflation Contracts and Inflation Targets with Uncertain Central Bank Preferences: Accountability through Independence?," Economic Journal, Royal Economic Society, vol. 108(447), pages 529-542, March.
    10. Herrendorf, Berthold & Lockwood, Ben, 1997. "Rogoff's "Conservative" Central Banker Restored," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 476-495, November.
    11. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
    12. Francesca Castellani, 2001. "Central Bank Independence and Accountability Under Complete Information," IHEID Working Papers 05-2001, Economics Section, The Graduate Institute of International Studies.
    13. Gabriel Di Bella & Ms. Teresa Daban Sanchez & Ms. Enrica Detragiache & Mr. Gian M Milesi-Ferretti & Mr. Steven A. Symansky, 2003. "Rules-Based Fiscal Policy in France, Germany, Italy, and Spain," IMF Occasional Papers 2003/009, International Monetary Fund.
    14. Marco Catenaro & Patrizio Tirelli, 1999. "Reconsidering The Pros and Cons of Fiscal Policy Coordination in a Monetary Union: Should We Set Public Expenditure Targets?," Working Papers 30, University of Milano-Bicocca, Department of Economics, revised Sep 2000.
    15. Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 1-10, December.
    16. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    17. Lawler, Phillip, 2000. "Centralised Wage Setting, Inflation Contracts, and the Optimal Choice of Central Banker," Economic Journal, Royal Economic Society, vol. 110(463), pages 559-575, April.
    18. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
    19. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    20. Christian H. Beddies, 1999. "Monetary Policy and Public Finances: Inflation Targets in a New Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-4.
    21. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
    22. Jensen, Henrik, 2000. "Optimal monetary policy cooperation through state-independent contracts with targets," European Economic Review, Elsevier, vol. 44(3), pages 517-539, March.
    23. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
    24. Dornbusch, Rudi, 1997. "Fiscal Aspects of Monetary Integration," American Economic Review, American Economic Association, vol. 87(2), pages 221-223, May.
    25. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    26. Mr. Christian H. Beddies, 1999. "Monetary Policy and Public Finances: Inflation Targets in a New Perspective," IMF Working Papers 1999/026, International Monetary Fund.
    27. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xavier Debrun & Paul R. Masson, 2013. "Modelling Monetary Union in Southern Africa: Welfare Evaluation for the CMA and SADC," South African Journal of Economics, Economic Society of South Africa, vol. 81(2), pages 275-291, June.
    2. Daniele Franco (editor), 2012. "Rules and institutions for sound fiscal policy after the crisis," Workshop and Conferences 11, Bank of Italy, Economic Research and International Relations Area.
    3. Giovanni Coletta & Carmen Graziano & Giancarlo Infantino, 2015. "Do fiscal councils impact fiscal performance?," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.
    4. Debrun, Xavier, 2019. "Independent Fiscal Institutions in the European Union: Is Coordination Required?," MPRA Paper 93143, University Library of Munich, Germany.
    5. Jean‐Louis Combes & Xavier Debrun & Alexandru Minea & René Tapsoba, 2018. "Inflation Targeting, Fiscal Rules and the Policy Mix: Cross‐effects and Interactions," Economic Journal, Royal Economic Society, vol. 128(615), pages 2755-2784, November.
    6. Badinger, Harald & Reuter, Wolf Heinrich, 2017. "The case for fiscal rules," Economic Modelling, Elsevier, vol. 60(C), pages 334-343.
    7. Mr. Xavier Debrun, 2011. "Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies," IMF Working Papers 2011/173, International Monetary Fund.
    8. Lars Calmfors & Giancarlo Corsetti & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi & Xavier Vives, 2012. "Chapter 4: The Swedish Model," EEAG Report on the European Economy, CESifo, vol. 0, pages 99-114, February.
    9. Xavier Debrun & Tidiane Kinda, 2017. "Strengthening Post‐Crisis Fiscal Credibility: Fiscal Councils on the Rise – A New Dataset," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 667-700, December.
    10. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February.
    11. Sven Jari Stehn & Mr. David A Vines, 2008. "Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt," IMF Working Papers 2008/164, International Monetary Fund.
    12. Mr. Xavier Debrun & Jean-Louis Combes & Alexandru Minea & Rene Tapsoba, 2014. "Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?," IMF Working Papers 2014/089, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Xavier Debrun & Ms. Francesca Castellani, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 2001/205, International Monetary Fund.
    2. Francesca Castellani, 2001. "Central Bank Independence and Accountability Under Complete Information," IHEID Working Papers 05-2001, Economics Section, The Graduate Institute of International Studies.
    3. Chortareas, Georgios E & Miller, Stephen M, 2003. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Public Choice, Springer, vol. 116(3-4), pages 271-295, September.
    4. Weymark, Diana N., 2007. "Inflation, government transfers, and optimal central bank independence," European Economic Review, Elsevier, vol. 51(2), pages 297-315, February.
    5. Berthold Herrendorf & Manfred J.M. Neumann, 2003. "The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(484), pages 43-64, January.
    6. Gartner, Manfred, 2000. "Political Macroeconomics: A Survey of Recent Developments," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 527-561, December.
    7. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.
    8. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    9. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
    10. P Lawler, 2004. "Monetary Uncertainty, the Appropriate Choice of Central Banker and Social Welfare," Economic Issues Journal Articles, Economic Issues, vol. 9(2), pages 43-50, September.
    11. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    12. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, University Library of Munich, Germany.
    13. Walsh, Carl E, 2003. "Accountability, Transparency, and Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 829-849, October.
    14. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    15. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    16. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    17. Edward Kutsoati, 2000. "Debt-Contingent Inflation Contracts and Targeting," Discussion Papers Series, Department of Economics, Tufts University 0009, Department of Economics, Tufts University.
    18. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    19. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    20. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:intfin:v:8:y:2005:i:1:p:87-117. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.