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Independent Central Banks: Low Inflation at No Cost? A Model with Fiscal Policy

Author

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  • Montserrat Ferré

    (Mercer University and Universitat Rovira i Virgili)

  • Carolina Manzano

    (Mercer University and Universitat Rovira i Virgili)

Abstract

In this article we extend the rational partisan model of Alesina and Gatti (1995) to include a second policy, fiscal policy, besides monetary policy. It is shown that the extent to which an independent central bank is successful in attaining price stability depends on the degree of conservativeness of the central bank in relation to the political parties and the private sector's expectations on which party will win the elections. In addition, the inclusion of fiscal policy in Alesina and Gatti's model implies that uncertainty about the course of policy is not a sufficient factor to ensure that, when supply shocks are not relevant, independent central banks bring about low inflation at no real cost.

Suggested Citation

  • Montserrat Ferré & Carolina Manzano, 2020. "Independent Central Banks: Low Inflation at No Cost? A Model with Fiscal Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 16(6), pages 233-286, December.
    • Handle: RePEc:ijc:ijcjou:y:2020:q:5:a:6
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    References listed on IDEAS

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    1. Alberto Alesina & Guido Tabellini, 2007. "Bureaucrats or Politicians? Part I: A Single Policy Task," American Economic Review, American Economic Association, vol. 97(1), pages 169-179, March.
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    Cited by:

    1. Ferré, Montserrat & Manzano, Carolina, 2022. "The macroeconomic impact of radical right populist parties in government," Journal of Macroeconomics, Elsevier, vol. 74(C).

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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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; Treasury Policy

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