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Reliance, Composition, and Inflation

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  • Bhattacharya, Joydeep
  • Haslag, Joseph

Abstract

In this article Joydeep Bhattacharya and Joseph Haslag explore the effect of fiscal policy actions on long-run prices and the inflation rate. They study a model economy in which the central bank is not independent. Indeed, the government explicitly relies on the central bank for a predetermined amount of its revenue. Despite the absence of independence, the central bank does unilaterally control the composition of government paper. Bhattacharya and Haslag show that changes in reliance and composition have long-run impacts on prices and inflation. They conduct two separate policy experiments that suggest how a subservient central bank can retain substantial control over the inflation rate and still meet its revenue requirements set by the government.

Suggested Citation

  • Bhattacharya, Joydeep & Haslag, Joseph, 2000. "Reliance, Composition, and Inflation," Staff General Research Papers Archive 10389, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10389
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