Rogoff Revisited: The Conservative Central Banker Proposition Under Active Fiscal Policies
This paper generalizes and qualifies an influential monetary policy result due to Rogoff (1985) by taking fiscal policy, and fiscal-monetary interactions, into account. It shows that an appointment of a conservative central banker may, under a range of circumstances, (i) increase the average level of inflation; or (ii) decrease this level too much, producing deflation; and/or (iii) reverse the direction of the monetary response to shocks (from tightening to easing and vice versa). We show the conditions under which this can happen.
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