IDEAS home Printed from https://ideas.repec.org/p/boi/wpaper/2003.17.html
   My bibliography  Save this paper

Fiscal Dominance and Monetary Dominance in the Israeli Monetary Experience

Author

Listed:
  • Nissan Liviatan

    (Bank of Israel)

Abstract

This paper analyzes the monetary history of Israel in the framework of the concepts of fiscal dominance (FD) and monetary dominance (MD), which appeared in the recent macroeconomic models. It is shown that the inflationary period in Israel (1973 85) had distinct features of FD while the periods before and after the foregoing period can be characterized as belonging to a regime of MD. In this analysis we draw a distinction between solvencey of the public sector (which is based on the discounted public debt) and sustainability (which is based on the undiscounted debt). We also extend the concept of the Pigou effect to cover the price shocks that followed balance of payments crises. We claim that in the absence of a nominal anchor (which characterizes FD), these shocks entail increases in the inflation plateau. After the stabilization of 1985 (and especially in the nineties) the economic regime changed to MD, being based on a sustainable path of the public debt and on an inflation target regime.

Suggested Citation

  • Nissan Liviatan, 2003. "Fiscal Dominance and Monetary Dominance in the Israeli Monetary Experience," Bank of Israel Working Papers 2003.17, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2003.17
    as

    Download full text from publisher

    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2003.17.pdf
    File Function: First version, 2003
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evan Tanner & Alberto Ramos, 2003. "Fiscal sustainability and monetary versus fiscal dominance: evidence from Brazil, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(7), pages 859-873.
    2. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    3. 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.
    4. Bruno, Michael, 1993. "Crisis, Stabilization, and Economic Reform: Therapy by Consensus," OUP Catalogue, Oxford University Press, number 9780198286639.
    5. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
    6. Nissan Liviatan & Roni Frish, 2003. "Public Debt in a Long Term Discretionary Model," Bank of Israel Working Papers 2003.07, Bank of Israel.
    7. Brock, Philip L., 1984. "Inflationary finance in an open economy," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 37-53, July.
    8. Liviatan, Nissan, 1984. "Tight money and inflation," Journal of Monetary Economics, Elsevier, vol. 13(1), pages 5-15, January.
    9. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 333-389.
    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. Tersoo Shimonkabir SHITILE & Abubakar SULE, 2019. "Welfare Effect of Monetary Financing," Applied Economics and Finance, Redfame publishing, vol. 6(5), pages 145-157, September.
    2. Meir Sokoler, 2005. "Globalisation and its effects on monetary policy: the case of Israel," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 176-85, Bank for International Settlements.
    3. Meir Sokoler, 2005. "Approaching a decade of no foreign exchange intervention - lessons from Israel," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 188-95, Bank for International Settlements.
    4. Argov, Eyal & Binyamini, Alon & Elkayam, David & Rozenshtrom, Irit, 2007. "A Small Macroeconomic Model to Support Inflation Targeting in Israel," MPRA Paper 4784, University Library of Munich, Germany.
    5. Barrie, Mohamed Samba & Jackson, Emerson Abraham, 2022. "The impact of fiscal dominance on macroeconomic performance in Sierra Leone: a DSGE simulation approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 22(1), pages 1-33.
    6. Itamar Caspi, 2015. "Testing for a housing bubble at the national and regional level: the case of Israel," Globalization Institute Working Papers 246, Federal Reserve Bank of Dallas.
    7. Bank for International Settlements, 2005. "Foreign exchange market intervention in emerging markets: motives, techniques and implications," BIS Papers, Bank for International Settlements, number 24.
    8. Bank for International Settlements, 2005. "Globalisation and monetary policy in emerging markets," BIS Papers, Bank for International Settlements, number 23.

    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. Nathan Sussman & Yossi Saadon, 2006. "Interest Rate Differentials in a Small Open Economy – Long Run Relationship, the Israeli Case," Bank of Israel Working Papers 2006.01b, Bank of Israel.
    2. Emanuel Barnea & Nissan Liviatan, 2006. "Nominal Anchor: Economic and Statistical Aspects," Bank of Israel Working Papers 2006.01, Bank of Israel.
    3. Ramon Moreno, 2001. "Pegging and stabilization policy in developing countries," Economic Review, Federal Reserve Bank of San Francisco, pages 17-29.
    4. Liviatan, Nissan & Frish, Roni, 2006. "Interest on reserves and inflation," Journal of Development Economics, Elsevier, vol. 80(1), pages 269-274, June.
    5. Herzog, Bodo, 2006. "Coordination of fiscal and monetary policy in CIS-countries: A theory of optimum fiscal area?," Research in International Business and Finance, Elsevier, vol. 20(2), pages 256-274, June.
    6. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530, Elsevier.
    7. Ech-charfi, Nour-eddine, 2024. "Fiscal rules, capital controls, and cross-border financial integration," European Journal of Political Economy, Elsevier, vol. 85(C).
    8. Battilossi, Stefano, 2003. "Capital mobility and financial repression in Italy, 1960-1990 : a public finance perspective," IFCS - Working Papers in Economic History.WH wh030602, Universidad Carlos III de Madrid. Instituto Figuerola.
    9. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    10. Bajo-Rubio, Oscar & Díaz-Roldán, Carmen & Esteve, Vicente, 2009. "Deficit sustainability and inflation in EMU: An analysis from the Fiscal Theory of the Price Level," European Journal of Political Economy, Elsevier, vol. 25(4), pages 525-539, December.
    11. Mariano Tommasi, 2003. "Crises, institutions politiques et réformes politiques : le bon, le mauvais et l'affreux," Revue d’économie du développement, De Boeck Université, vol. 11(2), pages 49-81.
    12. International Monetary Fund, 2006. "Zambia: Selected Issues and Statistical Appendix," IMF Staff Country Reports 2006/118, International Monetary Fund.
    13. repec:got:cegedp:40 is not listed on IDEAS
    14. Valeriya Dinger & Sven Steinkamp & Frank Westermann, 2014. "The Tragedy of the Commons and Inflation Bias in the Euro Area," Open Economies Review, Springer, vol. 25(1), pages 71-91, February.
    15. Rigobon, Roberto, 2002. "Disinflation and fiscal reform: a neoclassical perspective," Journal of International Economics, Elsevier, vol. 58(2), pages 265-297, December.
    16. Mr. Helmut Wagner, 2001. "Implications of Globalization for Monetary Policy," IMF Working Papers 2001/184, International Monetary Fund.
    17. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    18. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    19. Alesina, Alberto F & Grilli, Vittorio & Milesi-Ferretti, Gian Maria, 1993. "The Political Economy of Capital Controls," CEPR Discussion Papers 793, C.E.P.R. Discussion Papers.
    20. Weder di Mauro, Beatrice & Van Rijckeghem, Caroline, 2004. "The Politics Of Debt Crises," CEPR Discussion Papers 4683, C.E.P.R. Discussion Papers.
    21. Robert Shum, 2014. "China, the United States, bargaining, and climate change," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 14(1), pages 83-100, March.

    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:boi:wpaper:2003.17. See general information about how to correct material in RePEc.

    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: Yossi Yakhin (email available below). General contact details of provider: https://edirc.repec.org/data/boigvil.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.