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Comparing the delegation of monetary and fiscal policy

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  • Simon Wren-Lewis

Abstract

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.

Suggested Citation

  • Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers 540, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:540
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper540.pdf
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    References listed on IDEAS

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    1. 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 482-496, November.
    2. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, February.
    3. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Inflation Bias with Dynamic Phillips Curves," CEPR Discussion Papers 5534, C.E.P.R. Discussion Papers.
    4. 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.
    5. 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 208-231, June.
    6. Fabian Eser & Campbell Leith & Simon Wren-Lewis, 2009. "When is monetary policy all we need?," Working Papers 2009_18, Business School - Economics, University of Glasgow.
    7. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers 5866, C.E.P.R. Discussion Papers.
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    Citations

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    Cited by:

    1. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce
      [Fiscal and Monetary Policy Interactions : The Greece Case]
      ," MPRA Paper 45931, University Library of Munich, Germany.
    3. Klaus Schmidt-Hebbel, 2012. "Fiscal Policy for Commodity Exporting Countries: Chile's Experience," Documentos de Trabajo 415, Instituto de Economia. Pontificia Universidad Católica de Chile..
    4. Lars Calmfors & Simon Wren‐Lewis, 2011. "What should fiscal councils do?," Economic Policy, CEPR;CES;MSH, vol. 26(68), pages 649-695, October.
    5. Calmfors, Lars, 2011. "The Swedish Fiscal Policy Council," Seminar Papers 769, Stockholm University, Institute for International Economic Studies.
    6. Lars Calmfors, 2011. "The Role of Independent Fiscal Policy Institutions," CESifo Working Paper Series 3367, CESifo Group Munich.
    7. Xavier Debrun, 2011. "Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies," IMF Working Papers 11/173, International Monetary Fund.
    8. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique
      [Coordination of monetary and fiscal policies: Theoretical Overview]
      ," MPRA Paper 48020, University Library of Munich, Germany.
    9. Giugale, Marcelo, 2010. "A Brave New World for Latin America," World Bank - Economic Premise, The World Bank, issue 10, pages 1-7, April.
    10. Charles Wyplosz, 2012. "Fiscal Rules: Theoretical Issues and Historical Experiences," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 495-525 National Bureau of Economic Research, Inc.
    11. Marcelo M. Giugale, 2010. "A Brave New World for Latin America," World Bank Other Operational Studies 10196, The World Bank.
    12. Beatriz de Blas & James Costain, 2012. "Smoothing shocks and balancing budgets in a currency union^M," 2012 Meeting Papers 975, Society for Economic Dynamics.
    13. Calmfors, Lars, 2010. "The Role of Independent Fiscal Policy Institutions," Seminar Papers 767, Stockholm University, Institute for International Economic Studies.
    14. Costain, James & de Blas, Beatriz, 2012. "The role of fiscal delegation in a monetary union: a survey of the political economy issues," Working Papers in Economic Theory 2012/11, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

    More about this item

    Keywords

    Delegation; Fiscal councils; Deficit bias; Government debt;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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