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Debt, Deficits, and Deflation in an Economy with Central Bank Independence

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  • Noritaka Kudoh

Abstract

This paper studies a simple monetary growth model with debt and deficits to investigate the effects of various polices on output and inflation when the central bank is `tough.' In sharp contrast to the vast literature which implicitly or explicitly assumes fiscal dominance regime, in which the fiscal authority commits to the primary deficits, an increase in government expenditures or the government's indebtedness reduces output and inflation: fiscal stimulus aiming at raising output and inflation will do just the opposite. Fighting deflation in a world with central bank independence requires fiscal discipline

Suggested Citation

  • Noritaka Kudoh, 2004. "Debt, Deficits, and Deflation in an Economy with Central Bank Independence," Econometric Society 2004 Far Eastern Meetings 486, Econometric Society.
  • Handle: RePEc:ecm:feam04:486
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    Cited by:

    1. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.

    More about this item

    Keywords

    monetary policy; fiscal policy; central bank independence;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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