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Monetary and Fiscal Coordination: Who Imposes Discipline on Whom?

Author

Listed:
  • Francesco De Sinopoli
  • Leo Ferraris
  • Claudia Meroni

Abstract

In an insightful paper entitled Some Unpleasant Monetarist Arithmetic, Sargent and Wallace (1981) have argued that, when monetary and fiscal policy are not coordinated, inflation can get out of control if the monetary authority does not impose discipline on the fiscal authority. This paper shows that discipline can be reciprocal if the policy interaction is repeated and the rationality of the authorities is fully taken into account through the equilibrium concept.

Suggested Citation

  • Francesco De Sinopoli & Leo Ferraris & Claudia Meroni, 2025. "Monetary and Fiscal Coordination: Who Imposes Discipline on Whom?," Working Papers 562, University of Milano-Bicocca, Department of Economics.
    • Handle: RePEc:mib:wpaper:562
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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