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

Author

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  • 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)

Abstract

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.

Suggested Citation

  • Marco Lossani & Piergiovanna Natale & Patrizio Tirelli, 2000. "A Nominal Income Growth Target for a Conservative ECB? When the policy mix matters," Working Papers 32, University of Milano-Bicocca, Department of Economics, revised Oct 2000.
    • Handle: RePEc:mib:wpaper:32
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    References listed on IDEAS

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