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Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium

  • Meixing Dai
  • Moïse Sidiropoulos

Several recent studies have shown that, when fiscal and monetary authorities play a Stackelberg game, central bank opacity has a fiscal disciplining effect in the sense that it induces the government to reduce taxes and public expenditures, leading hence to lower inflation and output distortions, and lower macroeconomic variability. We show in this paper that, in a Nash equilibrium, the government is still disciplined by central bank opacity. However, the disciplining effect on the level and variability of inflation and the output gap is dominated by the direct effect of opacity.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2011-17.

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Date of creation: 2011
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Handle: RePEc:ulp:sbbeta:2011-17
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  1. Giuseppe Ciccarone & Enrico Marchetti & Giovanni Di Bartolomeo, 2007. "Unions, Fiscal Policy And Central Bank Transparency," Manchester School, University of Manchester, vol. 75(5), pages 617-633, 09.
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  8. Giovanni Di Bartolomeo & Marco Manzo & Francesco Giuli, 2008. "Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness," Working Papers 0802, University of Crete, Department of Economics.
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  13. Di Bartolomeo Giovanni & Giuli Francesco, 2009. "Fiscal and monetary interaction under monetary policy uncertainty," wp.comunite 0061, Department of Communication, University of Teramo.
  14. Andrew Hughes Hallett & Nicola Viegi, 2003. "Imperfect transparency and the strategic use of information: an ever present temptation for central bankers?," Manchester School, University of Manchester, vol. 71(5), pages 498-520, 09.
  15. Thierry Burger-Helmchen & Laurence Frank, 2011. "La création de rentes : une approche par les compétences et capacités dynamiques," Working Papers of BETA 2011-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  16. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," American Economic Review, American Economic Association, vol. 93(5), pages 1522-1542, December.
  17. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  18. Pierre Dehez, 2011. "Allocation Of Fixed Costs: Characterization Of The (Dual) Weighted Shapley Value," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 141-157.
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