Inflation-Conservatism and Monetary-Fiscal Policy Interactions
This paper investigates the stabilization bias that arises in a model of monetary and fiscal policy stabilization of the economy, when assuming that the monetary authority put higher weight on inflation stabilization than society. We demonstrate that inflation-conservatism unambiguously leads to social welfare losses if the fiscal authority acts strategically. Although the precise form of monetary-fiscal interactions depends on the choice of fiscal instrument and on the level of steady state debt, the assessment of gains is robust to these assumptions. We also study how the outcome of stabilization depends on the leadership structure. We develop an algorithm that computes leadership equilibria as well in much wider spectrum of problems with strategic agents
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- Andrew Hughes Hallett & Jan Libich & Petr Stehlik, 2007.
"Rogoff Revisited: The Conservative Central Banker Proposition Under Active Fiscal Policies,"
CAMA Working Papers
2007-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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- de Zeeuw, A.J. & van der Ploeg, F., 1987.
"Difference games and policy evaluation : A conceptual framework,"
FEW 268, School of Economics and Management.
- de Zeeuw, A J & van der Ploeg, F, 1991. "Difference Games and Policy Evaluation: A Conceptual Framework," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 612-36, October.
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