Fiscal Policy Restrictions on Inflation Targeting: A Political Economy Approach2
Fiscal policy may impose restrictions on Inflation Targeting when Central Bank Independence (cbi) is institutionally weak and society has a real exchange rate target that is highly valued. In this environment, fiscal policy constrains the decisions of a committed, independent Central Bank (cb) regarding inflation. When such a pressure is strong enough to threaten cbi, monetary authorities react by setting an inflation target that differs from the one that would prevail in the absence of those threats. A simple model is used to illustrate this point where the cb takes into account the probability of survival as an independent institution.
Volume (Year): (2010)
Issue (Month): (March)
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- Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
- Giuseppe Diana & Moise Sidiropoulos, 2003.
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Working Papers of BETA
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