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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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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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  16. Patrizio Tirelli, 1997. "Dynamic Seigniorage Models Revisited. Should Fiscal Flexibility and Conservative Central Bankers Go Together?," Working Papers 19, University of Milano-Bicocca, Department of Economics, revised Feb 1999.
  17. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
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