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Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes

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  • Peter J. Stemp

    () (University of Melbourne)

  • William M. Scarth

    (McMaster University, Canada)

Abstract

This paper considers a central bank with a zero inflation target and a fiscal authority with a differing objective. Situations under which the fiscal authority is able to exploit the central bank's commitment to zero inflation are examined. An example using a calibrated model shows that, in practice, it may be irrelevant whether or not the fiscal authority is aware of the central bank's objective.

Suggested Citation

  • Peter J. Stemp & William M. Scarth, "undated". "Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes," Computing in Economics and Finance 1996 _055, Society for Computational Economics.
  • Handle: RePEc:sce:scecf6:_055
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    References listed on IDEAS

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    10. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
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    13. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
    14. David Backus & John Driffill, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 211-221.
    15. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
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