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Commitment vs. Discretion in the UK: An Empirical Investigation of the Monetary and Fiscal Policy Regime

  • Kirsanova, Tatiana
  • le Roux, Stephanus

This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime.

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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2013-52.

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Date of creation: 2013
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Handle: RePEc:edn:sirdps:479
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