IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/35691.html

Accounting for Credibility: Fiscal-Monetary Interactions and the Credibility of Central Bank Mandates

Author

Listed:
  • Luigi Bocola
  • Gastón Chaumont
  • Alessandro Dovis
  • Rishabh Kirpalani

Abstract

We develop a model for fiscal and monetary policy determination in the tradition of Sargent and Wallace (1981). Ex-ante, the government has incentives to delegate monetary policy to a central bank with an inflation targeting mandate. Ex-post, however, the government faces temptations to revoke the mandate to generate seigniorage revenues. The likelihood that the government will adhere to its commitment depends on shocks to fiscal fundamentals and the costs of reneging on the mandate. The economy endogenously transitions between a “monetary-dominant” regime where monetary policy adheres to its commitment and a “fiscal-dominant” regime where the fiscal authority interferes with monetary policy. These two regimes sharply differ in their implications for the comovement of inflation and debt-to-GDP ratios. We use the model as a measurement device to interpret the fiscal and monetary history in Colombia, Chile, and the U.S.

Suggested Citation

  • Luigi Bocola & Gastón Chaumont & Alessandro Dovis & Rishabh Kirpalani, 2026. "Accounting for Credibility: Fiscal-Monetary Interactions and the Credibility of Central Bank Mandates," NBER Working Papers 35691, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35691
    Note: EFG IFM ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w35691.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:35691. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.