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A Nominal Income Growth Target for a Conservative ECB? When the policy mix matters

  • Marco Lossani

    (Catholic University of Milan)

  • Piergiovanna Natale

    ()

    (Department of Economics, University of Milan-Bicocca and Catholic University of Milan)

  • Patrizio Tirelli

    ()

    (Department of Economics, University of Milan-Bicocca and University of Glasgow)

This paper contributes to the goal-versus-instrument independence debate for the ECB, exploring how alternative monetary arrangements perform when the fiscal authority pursues a strategy of debt reduction in the long term but retains fiscal flexibility in response to supply shocks. If fiscal policy is countercyclical, a constant nominal income growth target should be assigned to a conservative central banker. In fact, as the fiscal authority and the central bank act independently in setting their countercyclical policies, an activist central banker causes excess volatility of inflation.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper32.pdf
File Function: First version, 2000
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 32.

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Length: 26 pages
Date of creation: Oct 2000
Date of revision: Oct 2000
Handle: RePEc:mib:wpaper:32
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