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Comparing the delegation of monetary and fiscal policy

  • Simon Wren-Lewis

The apparent success of independent central banks in conducting monetary policy has led many to argue that some form of policy delegation should also be applied to the macroeconomic aspects of fiscal policy.� A number of countries have recently established Fiscal Councils, although their role is typically to give advice on paths for government debt and deficits rather than decide upon and implement policy.� This paper examines how useful a comparison between monetary and fiscal policy can be in motivating and guiding Fiscal Councils.� Simple analogies between inflation bias and deficit bias can be misleading, and the motives for delegating aspects of fiscal policy may be rather different from those generally associated with monetary policy.� In addition, lack of knowledge about the desirable goals of long run debt policy, compared to a greater understanding of the objectives of monetary policy, may help explain key differences in the nature of delegation between the two.� The paper ends by making some comparisons between the delegation of monetary and fiscal policy in the United Kingdom.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 540.

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Date of creation: 01 Mar 2011
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Handle: RePEc:oxf:wpaper:540
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  1. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers 5866, C.E.P.R. Discussion Papers.
  2. Leith, Campbell & Wren-Lewis, Simon, 2009. "When is Monetary Policy All we Need?," SIRE Discussion Papers 2009-25, Scottish Institute for Research in Economics (SIRE).
  3. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
  4. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
  5. Tatiana Kirsanova & Campbell Leith & Simon Wren-Lewis, 2009. "Monetary and Fiscal Policy Interaction: The Current Consensus Assignment in the Light of Recent Developments," Economic Journal, Royal Economic Society, vol. 119(541), pages F482-F496, November.
  6. Tatiana Kirsanova & Campbell Leith & Simon Wren-Lewis, 2006. "Should Central Banks Target Consumer Prices or the Exchange Rate?," Economic Journal, Royal Economic Society, vol. 116(512), pages F208-F231, 06.
  7. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Inflation Bias with Dynamic Phillips Curves," CEPR Discussion Papers 5534, C.E.P.R. Discussion Papers.
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